| **UNITED STATES SECURITIES AND EXCHANGE COMMISSION** Washington, D.C. 20549**FORM 10-K**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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| [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | EXCHANGE ACT OF 1934 |
| [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES For                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | EXCHANGE ACT OF 1934 |
| For the transition period ______ to ______.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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| **FOR THE FISCAL YEAR ENDED JULY 2, 2006******Commission File Number 1-5761                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **LaBARGE, INC.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| (Exact name of registrant specified in its charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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| DELAWARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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| 73-0574586                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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| 9900 CLAYTON ROAD, ST. LOUIS, MISSOURI 63124                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| (Address of principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (ZIP Code) |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Registrant’s telephone number, including area code: | (314) 997-0800 |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **Securities registered pursuant to Section 12(b) of the Act:** |  |
| Common Stock, $.01 par value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | American Stock Exchange |
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| Title of Class                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  | Name of each exchange on which registered |
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| **Securities registered pursuant to Section 12(g) of the Act:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Series C Junior Participating Preferred Stock Purchase Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
|                                                                                                       [X] | Yes [  ]  No [X] |  |
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
|                                                                                                        [X] | Yes [  ]  No [X] |  |
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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 periodthat the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.   Yes [X]  No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                    [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” inRuler 12b-2 of the Exchange Act.

             Large AcceleratedFiler   [  ]            Accelerated Filer   [X]            Non-AcceleratedFiler   [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|                                                                                                        [X] | Yes [  ]  No [X] |  |
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As of July 2, 2006, 15,166,991 shares of common stock of the registrant were outstanding; the aggregate market value of the shares of common stock of the registrant held by non-affiliates was approximately $201.3million, based upon the closing price of $13.27 per share on the American Stock Exchange on June 30, 2006.

**DOCUMENTS INCORPORATED BY REFERENCE**

Certain portions of the Company’s definitive proxy materials relating to the Company’s 2007 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (“SEC”)within 120 days after the end of the Company’s fiscal year are incorporated in Part III of this annual report.

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**LaBarge, Inc.Form 10-KFor The Year Ended July 2, 2006**
|  **Part I**                                                                                                                     |
|--------------------------------------------------------------------------------------------------------------------------------------|
|                        |                                                                                                                                                         |
| Item 1.                                                                                                                              | Business |
| Item 1A.                                                                                                                             | Risk Factors |
| Item 1B.                                                                                                                             | Unresolved Staff Comments |
| Item 2.                                                                                                                              | Properties |
| Item 3.                                                                                                                              | Legal Proceedings |
| Item 4.                                                                                                                              | Submission of Matters to a Vote of Security Holders |
|                                                                                                                                 |   |
| **Part II**                                                                                                                          |
|                                                                                                                                 |   |
| Item 5.                                                                                                                              | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities |
| Item 6.                                                                                                                              | Selected Financial Data |
| Item 7.                                                                                                                              | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Item 7A.                                                                                                                             | Quantitative and Qualitative Disclosures about Market Risk |
| Item 8.                                                                                                                              | Financial Statements and Supplementary Data |
| Item 9.                                                                                                                              | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures |
| Item 9A.                                                                                                                             | Controls and Procedures |
| Item 9B.                                                                                                                             | Other Information |
|                                                                                                                                 |                                                                                                                                                      |
| **Part III**                                                                                                                         |
|                                                                                                                            |   |
| Item 10.                                                                                                                             | Directors and Executive Officers of the Registrant |
| Item 11.                                                                                                                             | Executive Compensation |
| Item 12.                                                                                                                             | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
| Item 13.                                                                                                                             | Certain Relationships and Related Transactions |
| Item 14.                                                                                                                             | Principal Accounting Fees and Services |
|                                                                                                                                 |   |
| **Part IV**                                                                                                                          |
|                                                                                                                                 |   |
| Item 15.                                                                                                                             | Exhibits and Financial Statement Schedules |
|                                                                                                                                 |   |
| **     **                                                                                                   |
|                                                                                                                                 |   |

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**PART I**

**
| **ITEM 1.** | **   ** | **BUSINESS** |
|-------------|------------------------|--------------|

**General Development of Business and Information about Business Activity**LaBarge, Inc. (“LaBarge” or the “Company”) is a Delaware corporation that manufactures and designs high-performance electronics and interconnect systems on a contract basis for customers in diversetechnology-driven markets.  The Company’s core competencies are to provide complete electronic systems solutions, including the manufacturing, engineering and design of interconnect systems, circuit card assemblies and high-level assemblies for itscustomers’ specialized applications.

The Company markets its services to customers desiring an engineering and manufacturing partner capable of developing and providing high-reliability electronic equipment, including products capable of performingin harsh environmental conditions, such as high and low temperature, severe shock and vibration.  The Company serves customers in a variety of markets including defense, government systems, aerospace, natural resources, industrial and other commercialmarkets.  The Company’s engineering and manufacturing facilities are located in Arkansas, Missouri, Oklahoma, Texas and Pennsylvania.  The Company employs approximately 1,200 people, including approximately 1,010 people (of which 39 are engineers) whoprovide support for production activities and approximately 190 people who provide administrative support.

On February 17, 2004, the Company acquired substantially all of the assets of Pinnacle Electronics LLC (“Pinnacle” or “the Pittsburgh operation”).  The acquired assets supplement theCompany’s electronics manufacturing services (“EMS”) business with a leased manufacturing location in metropolitan Pittsburgh, Pennsylvania, substantially enhancing the Company’s commercial/industrial sales mix.  Pinnacle’scommercial/industrial market expertise, supported by a strong management team, further diversifies the Company’s historic strength in the government/defense marketplace.

Pinnacle understands the unique characteristics of the commercial/industrial EMS market and has developed competencies and inventory management practices to maximize productivity and profitability. The Pittsburghoperation designs, engineers and manufactures printed circuit card assemblies, cables and harnesses, full “box-build” assemblies and electronic/electromechanical systems for customers in a variety of commercial/industrial markets. The Company believesthere will be continued growth in these markets as the trend to outsource non-core-competency manufacturing continues.

The purchase price for Pinnacle was $43.1 million, which included a post-closing working capital adjustment of approximately $2.1 million, and was funded by senior bank debt and cash on hand.  In addition,the Company assumed working capital liabilities of approximately $3.7 million, primarily trade accounts payable, and incurred transaction costs of approximately $0.3 million.

The Company’s total net sales were $190.1 million, compared with $182.3 million for fiscal 2005, and $131.5 million for fiscal 2004.  The backlog for the Company at July 2, 2006 was $183.9 million,compared with $164.9 million at July 3, 2005, an increase of 11.5%.  The growth in backlog is the result of a sales and marketing effort that focuses on matching the Company’s core competencies to the outsourcing needs of targeted large customers in avariety of industries.  Approximately $38.9 million and $32.4 million of the backlog at fiscal 2006 year-end and fiscal 2005 year-end, respectively, are scheduled to ship beyond the subsequent 12 months pursuant to the shipment schedules contained in thosecontracts.

**Sales and Marketing**During fiscal 2006, 39.9% of the Company’s revenues were generated from customers in the defense market, 20.5% from natural resources, 17.6% from industrial and 9.9% from the government systems market. The remaining12.1% of sales came from various customers in the commercial aerospace, medical, telecommunications and other industries.  The Company produces electronic equipment for use in a variety of high-technology applications, including military communication and radarsystems, industrial automation, military and commercial aircraft, satellites, space launch vehicles, down-hole instrumentation for oil and gas wells, and postal automation equipment.  The Company’s broad-based core competencies in electronics design andmanufacturing allow it to pursue diverse opportunities with customers in many different markets.  The diversification of the Company’s customer base helps protect it from volatility in any one market sector.

With few exceptions, the Company’s sales are made pursuant to fixed-price contracts.  Larger, long-term government contracts frequently have provisions for milestone, progress payments or cash advancesfor purchase of inventory.

The Company seeks to develop strong, long-term relationships with its customers, which will provide the basis for future sales.  These close relationships allow the Company to better understand eachcustomer’s business needs and identify ways to provide greater value to the customer.

**Competition**There is intense competition for all of the Company’s targeted customers.  While the Company is not aware of another entity that competes in all of its capabilities, there are numerous companies, many larger,which compete in one or more of these capabilities.  The Company’s customers frequently have the ability to produce internally the products contracted to the Company, but because of cost, capacity, engineering capability or other reasons, outsourceproduction of such products to the Company. The principal bases of competition are service, price, engineering expertise, technical and manufacturing capabilities, quality, reliability, and overall project management capability.

**Concentration of Business**Three customers, each with multiple operating units, together accounted for 35% of the Company’s consolidated sales in fiscal 2006:  Owens-Illinois, Inc., 12%; Northrop Grumman Corporation, 12%; and SchlumbergerLtd., 11%.  No other customer accounted for more than 8% of total sales. Sales to the largest 10 customers represented approximately 69% of the Company’s total sales in fiscal year 2006 and 72% in fiscal year 2005.In fiscal years 2006 and 2005, respectively, 49.8% and 48.8% of the Company’s net sales derived from sales contracts with original equipment manufacturers (“OEMs”) doing business with the U.S. Government or its agencies. Generally, governmentcontracts may be terminated at the convenience of the government. When such contracts are terminated, the Company typically receives payments to cover its direct and indirect costs incurred before termination.

**Manufacturing Operations**The Company has organized its engineering and production to provide flexible independent plant locations with specific design and manufacturing capabilities.  This approach allows local management at each facility toconcentrate the necessary attention on specific customer needs and, at the same time, control all key aspects of the engineering and manufacturing processes.Generally, there are multiple sources for materials required by the Company for its manufacturing process. However, pursuant to some of its contracts, the Company is limited to a single source for certain electronic components. In most cases, the Company believesthat if it were unable to obtain components from the designated source, it would be able to obtain a new source, mutually agreed upon by the parties, without adversely impacting its manufacturing process.

**Strategy**The Company’s business strategy is to serve as an outsourcing partner to OEMs that do business in diverse markets by providing a package of broad-based manufacturing capabilities and value-added services.  Thisstrategy is designed around the Company’s core competencies in manufacturing complex electronic assemblies, subsystems and interconnect systems for specialized applications where reliability is critical.  The Company’s business historically wasconcentrated in the defense and other government-related markets.  In recent years, that focus has broadened to include industrial and commercial customers.  This greater market diversity helps protect the Company from downturns in any onemarket.

********Capital Structure**The Company entered into a senior secured loan agreement with a group of banks on February 17, 2004 that was amended on February 10, 2006, increasing the revolving credit facility by $10.0 million.  The followingis a summary of the agreement:
|  •                   |   | A revolving credit facility up to $30.0 million, available for direct borrowings or letters of credit.  The facility is based on a borrowing base formula equal to the sum of 85% of eligible receivables and 35% of eligibleinventories. As of July 2, 2006, outstanding loans under the revolving credit facility were $19.5 million.  Letters of credit outstanding were $1.6 million, and $8.9 million was available at July 2, 2006. This credit facility matures on February 17,2009.                                                                                                                                                                                                                                                                                                                                                                                 |              |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                    |                                                                          |
|  •                   |   | A $25.0 million term loan amortized beginning May 2004, at a quarterly rate of $1.0 million, increased to $1.25 million in May 2006 and increasing to $1.5 million in May 2007.  Final maturity is February2009.  As of July 2, 2006, the amount outstanding was $15.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                          |
|  •                   |        | On April 15, 2004, the Company entered into an Interest Rate Cap Agreement with a bank.  This Cap Agreement caps the Company’s exposure to increases in LIBOR at 4% for a period of three years on a notional amountbeginning at $24.0 million and amortizing on a schedule that matches amortization of the $25.0 million term loan dated February 17, 2004. As a result of this Cap Agreement, for the year-ended period, interest expense was reduced by $72,000.                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                          |
|                                |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                          |
|  •                   |        | Interest on both loans is at a percentage of prime or a stated rate over LIBOR based on certain ratios.  For the year ended July 2, 2006, the average rate was approximately 5.89%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                          |
|       |   |                                                                                                                                                 |                                                                          |
|  •                   |   | Both loans are secured by substantially all the assets of the Company other than real estate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                          |
|                           |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                          |
|  •                   |        | Covenants and performance criteria consist of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) in relation to debt, EBITDA in relation to fixed charges and minimum net worth. The Company isin compliance with its borrowing agreement covenants as of July 2, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                          |
|            |   |                                                                                                                                                           |                                                                     |

***Other Long-term Debt:****Mortgage Loan:*The Company has a $6.4 million term loan secured by the Company’s headquarters building in St. Louis, Missouri.  The loan repayment schedule is based on a 25-year amortization with a final balloon payment due in October2009.  The balance at July 2, 2006 was $5.5 million.  Interest is at a percentage of prime or a stated rate over LIBOR based on certain ratios.  For the year ended July 2, 2006, the average rate was approximately 4.82%.

*****Industrial Revenue Bonds:*In July 1998, the Company acquired tax-exempt Industrial Revenue Bond financing in the amount of $1.3 million.  The debt is payable over 10 years with an interest rate of 5.28%.  This funding was used to expand the Berryville,Arkansas, facility.   The outstanding balance at July 2, 2006 was $369,000.

*Capital Lease Obligations:*In October 2005, the Company entered into a capital lease agreement to fund the purchase of machinery with a fair market value of $664,000. The lease is for five years with an interest rate of 6.18%. The obligation outstanding at July 2,2006 was $587,000.

The aggregate maturities of long-term obligations are as follows:*(dollars in thousands)*
| **Fiscal Year**               |
|-------------------------------|
|                               |
| 2007                          | ...............................................................  | $ | 5,791 |   |
| 2008                          | ...............................................................  |      | 6,553 |   |
| 2009                          | ...............................................................  |       | 4,937 |   |
| 2010                          | ...............................................................  |       | 4,861 |   |
| 2011                          | ...............................................................  |       | 51 |   |
| Thereafter                    | ...............................................................  |       | --- |   |
|                               |
|     Total | ...............................................................  |  $ | 22,193 |   |
|                               |

****

**Environmental Compliance**Compliance with federal, state and local environmental laws is not expected to materially affect the capital expenditures, earnings or competitive position of the Company.

****

**Financial Information About Foreign and Domestic Operations and Export Sales**No information has been included hereunder because the Company’s foreign sales in each of fiscal 2006, fiscal 2005 and fiscal 2004 were less than 10% of the total Company revenue.

**Available Information**We make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended, through our website at www.labarge.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
| **ITEM 1A.** | **   ** | **RISK FACTORS** |
|--------------|------------------------|------------------|

The Company is subject to certain risks and events that, if one or more of them occur, could adversely affect our business, financial condition and results of operations and the trading price of our common stock.  You should consider the following risk factors,in addition to other information presented in this report, as well as the other reports and registration statements we file from time to time with the SEC, in evaluating the Company, our business and making an investment in our securities.  The risks below arenot the only risks that the Company faces.  Additional risks not currently known to us or those that we currently deem immaterial may also impair our business.

*The Company experiences variable operating results.*The Company’s results of operations have varied and may continue to fluctuate significantly from period to period, including on a quarterly basis. Consequently, results of operations in any period should not be considered indicative ofthe results for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company’s common stock.

The Company’s quarterly and annual results may vary significantly depending on numerous factors, many of which are beyond the Company’s control. These factors include:
|  •                   |   | Changes in sales mix to customers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |              |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------|
|                                |        |                                                                                                                                            |                                                                          |
|  •                   |        | Changes in availability and cost of components                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                          |
|                           |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                          |
|  •                   |        | Volume of customer orders relative to capacity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                          |
|                           |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                          |
|  •                   |        | Market demand and acceptance of our customers’ products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                          |
|                           |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                          |
|  •                   |        | Price erosion within the EMS marketplace                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                          |
|  •                   |        | Capital equipment requirements needed to remain technologically competitive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                          |

*The Company’s customer base is concentrated.*Significant reduction in sales to any of the Company’s major customers or the loss of a major customer could have a material impact on the Company’s operations. Although the Company believes its relationships with its largecustomers are good. There can be no assurance that the Company will retain any or all of its large customers or will be able to form new relationships with customers upon the loss of one or more of its existing customers. This risk may be further complicated bypricing pressures and intense competition prevalent in our industry.

*A material portion of the Company’s business is dependent on defense contracts with the U.S. Government, which could be adversely affected by cutbacks in government defense spending.*In fiscal 2006 and 2005, respectively, approximately 40% and 45% of the Company’s net sales were generated from subcontracts with OEMs on defense contracts with the U.S. Government.  The Company’s net sales could be negatively impacted as a result ofgovernment defense spending cuts, general budgetary constraints, and the complex and competitive government procurement processes.  If the Company is unable to maintain this level of government-related sales, or replace government-related contracts with those ofcomparable non-government customers, the Company’s sales and results of operations will be adversely affected.

*Some of the Company’s contracts involving the government are subject to cancellation at the government’s option.*In fiscal 2006 and 2005, respectively, approximately 49.8% and 48.8% of the Company’s revenues were derived from subcontracts with OEMs on their contracts with the U.S. government.  The government has the right to terminate thesecontracts without cause for its convenience.  While the Company normally recovers its direct and indirect costs, termination of the contract by the government could result in the Company receiving lower than anticipated profits for the Company.

*There is variability in the requirements of the Company’s customers.*The Company does not generally obtain long-term purchase contracts. The timing of purchase orders placed by the Company’s customers is affected by a number of factors, including variation in demand for the customers’ products,federal government funding, regulatory changes affecting customer industries, customer attempts to manage their inventory, changes in the customers’ manufacturing strategies and customers’ technical problems or issues. Many of these factors are outsidethe control of the Company.

*The Company and its customers may be unable to keep current with the industry’s technological changes.*The market for the Company’s manufacturing services is characterized by rapidly changing technology and continuing product development. The future success of the Company’s business will depend in large part upon its and itscustomers’ ability to maintain and enhance its technological capabilities, develop and market manufacturing services which meet changing customer needs, and successfully anticipate or respond to technological changes in manufacturing processes on acost-effective and timely basis.

Certain of the Company’s customers must be in compliance with a new European standard, Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS Directive 2002-95-EC) for all products shipped tothe European marketplace. The purpose of the directive is to restrict the use of hazardous substances in electrical and electronic equipment and to contribute to the environmentally sound recovery and disposal of electrical and electronic equipment waste. Inaddition, electronic component manufacturers must produce electronic components that are lead-free. The Company’s Pittsburgh operation has implemented lead-free wave solder and reflow systems. The Company relies on numerous third-party suppliers for componentsused in the Company’s production process. Customers’ specifications may require the Company to obtain components from a single source or a small number of suppliers. There is no assurance these suppliers will comply with RoHS. The inability to utilize anysuch suppliers could increase the cost of components and have a material impact on the Company’s results of operations.

*The Company faces intense industry competition and downward pricing pressures.*The EMS industry is highly fragmented and characterized by intense competition. Some of the Company’s competitors have substantially greater manufacturing, purchasing, marketing and financial resources than the Company. Many of theCompany’s customers have the in-house capability to fulfill their material requirements.

There can be no assurance that competition from existing or potential competitors will not have a material adverse impact on the Company’s business, financial condition or results of operations. The introduction of lowerpriced competitive products, significant price reductions by the Company’s competitors or significant pricing pressures from its customers could adversely affect the Company’s business, financial condition, and results of operations.

*The Company does not have the ability to control, and may not accurately estimate, its costs associated with performing under fixed-price contracts.*Most of the Company’s contracts are on a fixed-price basis.  In order to realize a profit on these contracts, the Company must, when it bids these contracts, accurately estimate its costs to complete the contracts.  Itsfailure to accurately estimate these costs can result in cost overruns, which result in reduced or lost profits.  Estimates of labor costs are most difficult in the case of contracts with new customers.  For example, in fiscal 2006, the Company incurredunanticipated labor and other costs in the start-up phases of several contracts with new customers, which had a negative impact on the Company’s operating margins.

*The availability of raw components may affect the Company’s operations.*The Company relies on numerous third-party suppliers for components used in the Company’s production process. Certain of these components are available only from single sources or a limited number of suppliers. In addition, acustomer’s specifications may require the Company to obtain components from a single source or a small number of suppliers. The loss of any such suppliers could have a material impact on the Company’s results of operations. The Company could operate at acost disadvantage compared to competitors who have greater direct buying power from suppliers.

*The Company may not be able to replace completed, canceled or reduced contracts with new contracts.*The Company is dependent upon contract awards by its customers.  The size and timing of contracts vary from period to period.  If the Company is unable to replace completed, canceled or reduced contracts in a timely fashion,revenues and operating results will decline.

*The Company is dependent on key personnel.*The Company depends significantly on its executive and plant management. The loss of the services of any of these key employees could have a material impact on the Company’s business and results of operations. In addition, despitesignificant competition, continued growth and expansion of the Company’s contract manufacturing business will require that it attract, motivate and retain additional skilled and experienced personnel. The inability to satisfy these requirements could have anegative impact on the Company’s ability to remain competitive in the future.

*Failure to comply with environmental regulations could subject the Company to liability.*The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its manufacturing process. Any failure by the Company to comply with present or futureregulations could subject it to future liabilities or the suspension of production, which could have a material negative impact on the Company’s results of operations.

*The price of the Company’s stock is volatile.*The price of the Company’s Common Stock historically has experienced significant volatility due to a number of factors including: fluctuations in the Company’s revenue and earnings, the market’s changing expectations forthe Company’s growth, overall equity market conditions, the limited float of the Company’s Common Stock and other factors either related or unrelated to the Company’s operations. Such fluctuations are expected to continue.
| **ITEM 1B.** | **   ** | **UNRESOLVED STAFF COMMENTS** |
|--------------|------------------------|-------------------------------|

Not applicable.
| **ITEM 2.** | **   ** | **PROPERTIES** |
|-------------|------------------------|----------------|

The Company’s principal facilities, which are deemed adequate and suitable for the Company’s business, are as follows:
| **Location**                                                                                                                                                                         | **    ** | **Principal Use**                                                                                                                                                                                                                                                  |                    | **Land (acres)**                                 |                    | **Buildings (sq. ft.)**                                                                                            |                    | **Calendar Year of Termination of Lease**                                                                                                                                                  |                                |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|
|                                                                                                                                                                                      |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                                            |                                |
| Berryville, AR                                                                                                                                                                       |                              | Manufacturing & Offices                                                                                                                                                                                                                                        |     | 17.5                                             |     | 52,000                                                                                                             |     | Owned                                                                                                                                                                                      |                                |   |
|                                          |                              |                                             |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                   |                                |   |
| Houston, TX                                                                                                                                                                          |                              | Manufacturing & Offices                                                                                                                                                                                                                                        |                    | 2                                                |                    | 33,000                                                                                                             |                    | 2013                                                                                                                                                                                       |       |   |
|                                |                              |                                             |                    |                                                  |                    |                     |                    |                                 |                                |   |
| Huntsville, AR                                                                                                                                                                       |                              | Manufacturing & Offices                                                                                                                                                                                                                                        |                    | 6                                                |                    | 69,000                                                                                                             |                    | 2020                                                                                                                                                                                       |                                |   |
|                                                                                                                                                                                      |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                        |                                |   |
| Joplin, MO                                                                                                                                                                           |                              | Manufacturing & Offices                                                                                                                                                                                                                                        |                    | 5                                                |                    | 60,000                                                                                                             |                    | Owned                                                                                                                                                                                      |                                |   |
|                                                                                                                                                                                      |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                   |                                |   |
| Joplin, MO                                                                                                                                                                           |                              | Manufacturing                                                                                                                                                                                                                                                      |                    | 4                                                |                    | 33,000                                                                                                             |                    | 2008                                                                                                                                                                                       |                                |   |
|                                                                                                                                                                                      |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                                            |                                |   |
| Joplin, MO                                                                                                                                                                           |                              | Manufacturing                                                                                                                                                                                                                                                      |                    | 1                                                |                    | 56,600                                                                                                             |                    | 2011                                                                                                                                                                                       |                                |   |
|                                                                                                                                                                                 |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                        |                                |   |
| Pittsburgh, PA                                                                                                                                                                       |                              | Manufacturing & Offices                                                                                                                                                                                                                                        |                    | 5                                                |                    | 135,504                                                                                                            |                    | 2010                                                                                                                                                                                       |                                |   |
|                                                                                                                                                                                 |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                                            |                                |   |
| Pittsburgh, PA                                                                                                                                                                       |                              | Manufacturing                                                                                                                                                                                                                                                      |                    | 1                                                |                    | 29,880                                                                                                             |                    | 2008                                                                                                                                                                                       |                                |   |
|                                                                                                                          |               |                                                                                                                             |          |          |          |                               |          |                                                                                                                                                         |                 |   |
| St. Louis, MO                                                                                                                                                                        |                              | Offices                                                                                                                                                                                                                                                            |                    | 8                                                |                    | 65,176                                                                                                             |                    | Owned                                                                                                                                                                                      |                                |   |
|                                                                                                                                                                                      |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                        |                                |   |
| Tulsa, OK                                                                                                                                                                            |                              | Manufacturing & Offices                                                                                                                                                                                                                                        |                    | 3                                                |                    | 55,000                                                                                                             |          | 2008                                                                                                                                                                                       |                                |   |
|                                                                                                                                                                                      |                              |                                                                                                                                                                                                                                                                    |                    |                                                  |                    |                                                                                                                    |                    |                                                                                                                                                                        |                                |   |
| Tulsa, OK                                                                                                                                                                            |                              | Manufacturing                                                                                                                                                                                                                                                      |                    | 1                                                |                    | 6,425                                                                                                              |                    | 2008                                                                                                                                                                                       |                                |   |
|                                          |                    |                                                                                                              |               |                    |          |                                                   |          |                                                                         |                                |   |
| Tulsa, OK                                                                                                                                                                            |                              | Offices                                                                                                                                                                                                                                                            |                    | .5                                               |                    | 3,235                                                                                                              |                    | 2008                                                                                                                                                                                       |                                |   |
|                                                                                                                                                                                      |
| **ITEM 3.** | **   ** | **LEGAL PROCEEDINGS** |
|-------------|------------------------|-----------------------|

In March 2004, the Company received notice from the Library of Congress (“LOC”) that the LOC was seeking financial restitution in the amount of $1.8 million stemming from the Company’s production ofaudiocassette machines during the period 1992 through 1996. The LOC claimed the machines were defective.  The Company disputed the LOC’s position.

During the fiscal year ended July 2, 2006, in order to avoid future legal expenses, the Company paid $50,000 to settle all claims related to this issue, without an admission of liability.

In March 2005, the Company entered into a contract with Northrop Grumman Corporation to supply equipment used on mail sorting machines. The equipment to be manufactured and the services to be performed have undergone hundredsof design and component changes. The Company has negotiated a settlement of the claims arising from these changes.  During the year ended July 2, 2006, the Company recovered its costs under the claim.
| **ITEM 4.** | **   ** | **SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS** |
|-------------|------------------------|--------------------------------------------------------|

There were no items submitted to a vote of the security holders in the quarter ended July 2, 2006.

----

**PART II**

****
| **ITEM 5.** | ** ** | **MARKET FOR REGISTRANTS**’**S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES** |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------|

**Stock Price and Cash Dividends: **LaBarge, Inc.’s Common Stock is listed on the American Stock Exchange, under the trading symbol of “LB.”  As of September 5, 2006, therewere 2,126 holders of record of LaBarge, Inc.’s Common Stock.  The following table indicates the quarterly high and low sales prices for the stock for the fiscal years 2006 and 2005, as reported by the American Stock Exchange.
| **2005-2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **High**                                                                                                                                                                       | **Low**                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **July – September**                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **$22.00**                                                                                                                                                                     |                                                                                                                                                                                | **$12.02** |  |
| **October – December**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | **15.15**                                                                                                                                                                      |                                                                                                                                                                                | **12.80** |  |
| **January – March**                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **17.76**                                                                                                                                                                      | **         **                                                                                                                     | **13.90** | **    ** |
| **April – June**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **16.43**                                                                                                                                                                      |                                                                                                                                                                                | **10.68** |  |
|                                                                                   |                               |                               |
| 2004-2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | High                                                                                                                                                                           | Low                                                                                                                                                                            |
| July – September                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $  9.00                                                                                                                                                              |                                                                                                                                                                                | $  6.68 |      |
| October – December                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 13.50                                                                                                                                                                          |                                                                                                                                                                                | 7.85 |  |
| January – March                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 13.75                                                                                                                                                                          |                                                                                                                                                                                | 9.70 |  |
| April – June                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 18.40                                                                                                                                                                          |                                                                                                                                                                                | 12.01 |  |

The Company has paid no cash dividends on its common stock. The Company currently anticipates that it will retain any future earnings for the development, operation and expansion of its business and for possibleacquisitions.

The following table contains certain information as of July 2, 2006 with respect to options granted and outstanding under the Company’s three stock option plans, shares available for purchase as of that date under theCompany’s employee stock purchase plan, weighted average exercise price of outstanding options, warrants and rights, and number of securities remaining available for future issuance under these plans.
|                                                              |                             |                                                                           |                          |                                                         |   | **Number of securities**                                                                                                                                                                                                                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          | **Number of**                    |                                                                      | **remaining available for future** |
|                                          | **securities to be issued upon** |                                                       | **issuance under**                 |
|                                               | **exercise of outstanding**      | **Weighted-average exercise price**                                                                                                                                                                                                                                                                                            | **equity compensation plans**      |
|                                                         | **options, warrants**            | **of outstanding options,**                                                                                                                                                                                                                                                                                                    | **(excluding securities**          |
| **Plan category**                                                                                                                                                                                                                                | **and rights**                   | **warrants and rights**                                                                                                                                                                                                                                                                                                        | **reflected in column 1)**         |
|                                                                                                                                                                                                                                                  |                                  |                                                                                                                                                                                                                                                                                                                                |                                    |                                                                                                                                                                                                                                                                                                                                            |        |                                                                                                                                                                                                                                                                                                                                                        |
| Equity compensation  plans approved by  security holders                                                                                                                                                                               |                                  | 1,771,151                                                                                                                                                                                                                                                                                                                      |                                    | $3.94                                                                                                                                                                                                                                                                                                                                      |        | 4,462                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                       |                        |                                                                      |                          |                                                                                       |   |                                                           |
| Equity compensation  plans not approved by  security holders                                                                                                                                                                           |                                  | ---                                                                                                                                                                                                                                                                                                                            |                                    | ---                                                                                                                                                                                                                                                                                                                                        |        | ---                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                  |                                  |                                                                                                                                                                                                                                                                                                                                |                                    |                                                                                                                                                                                                                                                                                                                                            |        |                                                                                                                                                                                                                                                                                                                                                        |

The following table contains certain information as of July 2, 2006 with respect to restricted stock awards outstanding under the 2004 Long Term Incentive Plan.
|                                                              |                                                                                                                                                                                                                                                                                                                     |                                                                           |                          |                                                         |   | **Number of securities**                                                                                                                                                                                                                                                                                                             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                      |                                                                      | **remaining available for future** |
|                                          | **                                              **                                 |                                                       | **issuance under**                 |
|                                               | **Number of securities**                                                                                                                                                                                                                                                                                                 | **                                                    **   | **equity compensation plans**      |
|                                                         | **to be issued based on**                                                                                                                                                                                                                                                                                                | **Weighted average price**                                                                                                                                                                                                                                                                                                     | **(excluding securities**          |
| **Plan category**                                                                                                                                                                                                                                | **outstanding grants**                                                                                                                                                                                                                                                                                                   | **of securities issued**                                                                                                                                                                                                                                                                                                       | **reflected in column 1)**         |
|                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                |                                    |                                                                                                                                                                                                                                                                                                                                            |        |                                                                                                                                                                                                                                                                                                                                      |
| Equity compensation  plans approved by  security holders                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                          | 79,693                                                                                                                                                                                                                                                                                                                         |                                    | $13.27                                                                                                                                                                                                                                                                                                                                     |        | 712,556                                                                                                                                                                                                                                                                                                                              |
|                                                                                  |                                                                                                                                                                                                                                                                                                                |                                                                                     |                          |                                                                                            |   |                                                        |
| Equity compensation  plans not approved by  security holders                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                          | ---                                                                                                                                                                                                                                                                                                                            |                                    | ---                                                                                                                                                                                                                                                                                                                                        |        | ---                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                |                                    |                                                                                                                                                                                                                                                                                                                                            |        |                                                                                                                                                                                                                                                                                                                                      |

In August 2005, the Company’s Board of Directors authorized the Company to repurchase up to 1 million shares of its Common Stock.  In the quarter ended July 2, 2006, the Company repurchased 54,600shares of its Common Stock.  The following table discloses certain information relating to these repurchases.
| **ISSUER PURCHASES OF EQUITY SECURITIES**                                                                                                                                                                                                                                                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **                                                 ** |  | **                              ** |  | **                           ** |  | **                              ** |  | **                                  ** |
| **Period**                                                                                                                                                                                                                                                                                                 |  | **Total Number of Shares (or Units) Purchased** |  | **Average Price Paid per Share (or Unit)** |  | **Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs****(1)** |  | **Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs** |
|                                                                                                                                                                                                                                                                                                            |  |  |  |  |  |  |  |  |
|                                                                 |  |                    |     |  |        |                   |  |                            |  |                                    |
|                                                                                                                                                                                                                                                                                             | April 3 - April 30 |  | --- |         |  |  | --- |  |  | --- |          |  |          | 988,700 |         |
|                                                                                                                                                                                                                                                                                                            |                                             |  |  |  |  |          |                   |  |    |  |                                  |
|                                                                                                                                                                                                                                                                                                            | May 1 - May 28 |  | 13,700 |  |  | $ | 13.40 |  |       | 13,700 |          |  |          | 975,000 |         |
|                                                                                                                                                                                                                                                                                             |                                             |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                            | May 29 - July 2 |  | 40,900 |  |  | $ | 12.50 |  |  | 40,900 |  |  |  | 934,100 |         |
|                                                                                                                                                                                                                                                                                                            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                            |      Total |  | 54,600 |  |  | $ | 12.95 |  |  | 54,600 |  |  |  | 934,100 |  |
|                                                                                                                                                                                                                                                                                                            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                  |  |  |  |  |  |  |  |  |  |  |  |  |

(1)       Shares repurchased under resolution of the Board of Directors dated August 24, 2005, authorizing repurchase of up to 1,000,000 shares.The authorization was renewed on August 23, 2006 for one year.
| **ITEM 6.** | **   ** | **SELECTED FINANCIAL DATA** |
|-------------|------------------------|-----------------------------|

*(dollars in thousands -- except per-share amounts)*
|                                                                                                           | **Year Ended**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                              | **July 2,**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |    |   |         | July 3, |        |  |       | June 27, |      |  |     | June 29, |     |   |      | June 30, |  |
|                                                                                       | **2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   | 2005 |   |   |    | 2004 |   |   |     | 2003 |   |   |   | 2002 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net sales                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | **$** | **190,089** |   |   | $ | 182,294 |   |   | $ | 131,510 |  |  | $ | 102,901 |  |  | $ | 117,190 |  |
| Pretax earnings from                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **                ** |      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  continuing operations                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **15,964** |  |  |  | 16,865 |  |  |  | 11,503 |  |  |  | 5,076 |  |  |  | 6,687 |  |
| Net earnings from                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |  |       |   |      |  |       |   |      |                   |  |  |  |  |  |  |  |  |  |
|  continuing operations                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **9,708** |  |  |  | 10,870 |  |  |  | 6,971 |  |  |  | 3,319 |  |  |  | 4,361 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Discontinued operations:**                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                |
|  Loss from operations,                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   net of taxes                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **---** |  |  |  | --- |  |  |  | (114 | ) |  |  | (859 | ) |  |  | (431 | ) |
|  Gain (loss) on disposal,                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **                ** |  |  |  |                     |  |  |  |                   |  |  |  |                   |  |  |  |                |       |
|   net of taxes                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  |  | --- |  |  |  | 12 |  |  |  | (212 | ) |  |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Net earnings**                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **$** | **9,708** |  |  | $ | 10,870 |  |  | $ | 6,869 |  |  | $ | 2,248 |  |  | $ | 3,930 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Basic earning (loss) per share:**                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                               |
|  Net earnings from                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                   |  |  |  |                 |  |  |  |                   |  |  |  |                      |  |  |  |                   |  |
|   continuing operations                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **0.64** |  |  | $ | 0.72 |  |  | $ | 0.47 |  |  | $ | 0.22 |  |  | $ | 0.29 |  |
|  Net loss from                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   discontinued operations                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  |  | --- |  |  |  | (0.01 | ) |  |  | (0.07 | ) |  |  | (0.03 | ) |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Basic net earnings**                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **0.64** |  |  | $ | 0.72 |  |  | $ | 0.46 |  |  | $ | 0.15 |  |  | $ | 0.26 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Diluted earnings (loss) per share:**                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Net earnings from                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|  continuing operations                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **0.60** |  |  | $ | 0.68 |  |  | $ | 0.45 |  |  | $ | 0.22 |  |  | $ | 0.28 |  |
| Net earnings (loss) from                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   discontinued operations                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  |  | --- |  |  |  | (0.01 | ) |  |  | (0.07 | ) |  |  | (0.02 | ) |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Diluted net earnings**                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **$** | **0.60** |  |  | $ | 0.68 |  |  | $ | 0.44 |  |  | $ | 0.15 |  |  | $ | 0.26 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total assets                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **140,350** |  |  | $ | 119,937 |  |  | $ | 117,958 |  |  | $ | 67,162 |  |  | $ | 68,206 |  |
| Long-term debt                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **22,193** |  |  |  | 21,605 |  |  |  | 26,270 |  |  |  | 6,669 |  |  |  | 7,047 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                     |

No cash dividends have been paid during the aforementioned periods.

The Company’s interest in the Network Technologies Group was reported as a discontinued operation (see Note 2).  Accordingly, the operating results of Network Technologies Group for fiscal years 2002,2003 and 2004 are reported as discontinued operations.

The Company acquired substantially all of the assets of Pinnacle in fiscal year 2004.  See Note 2 to the financial statements.
| **ITEM 7****.** |     | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-----------------|--------------------|-------------------------------------------------------------------------------------------------|

Reference is made to the information contained in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 47 through 52 herewith.
| **ITEM 7A****.** |     | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|------------------|--------------------|----------------------------------------------------------------|

****

*Foreign Currency Risk*No information has been included hereunder because the Company’s foreign sales in each of fiscal years 2006, 2005 and 2004 were less than 10% of total Company revenue.  All foreign contracts are paid in U.S. dollarsand the Company is not significantly exposed to foreign currency translation.  However, if the significance of foreign sales grows, management will continue to monitor whether it would be appropriate to use foreign currency risk management instruments tomitigate any exposures.

*Interest Rate Risk*As of July 2, 2006, the Company had $41.7 million in total debt.  Industrial revenue bonds totaling $369,000 have a fixed rate and are not subject to interest rate risk.  The interest rate on the remaining $41.3million is subject to fluctuation.  If interest rates increased 1%, the additional interest cost to the Company would be approximately $228,000 for one year.  On April 15, 2004, the Company entered into an Interest Rate Cap Agreement with a bank.  ThisAgreement caps the Company’s exposure to 90-day LIBOR at 4% for a period of three years on a notional amount beginning at $24.0 million and amortizing on a schedule that matches amortization of the $25.0 million term loan dated February 17, 2004.
| **ITEM 8****.** | **   ** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA** |
|-----------------|------------------------|-------------------------------------------------|

Reference is made to the “Index to Consolidated Financial Statements and Schedules” contained on page 20 filed herewith.
| **ITEM 9****.** | **   ** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-----------------|------------------------|------------------------------------------------------------------------------------------|

Not applicable.
| **ITEM 9A****.** | **   ** | **CONTROLS AND PROCEDURES** |
|------------------|------------------------|-----------------------------|

*Evaluation Of Disclosure Controls And Procedures*The Company’s Chief Executive Officer and President, and the Company’s Vice President, Chief Financial Officer and Secretary, have conducted an evaluation of the design and effectiveness the Company’sdisclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.

The Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls, procedures and systems are functioning adequately andeffectively to provide reasonable assurance that the Company can meet its disclosure obligations.  The Company’s disclosure controls system is based upon a chain of financial and general business reporting lines that converge in the headquarters of theCompany in St. Louis, Missouri.  The reporting process is designed to ensure that information required to be disclosed by the Company in the reports that it files with or submits to the Securities and Exchange Commission is recorded, processed, summarized andreported within the time periods specified in the Commission’s rules and forms.

*Changes In Internal Controls*

During our fourth fiscal quarter, there were no significant changes in internal controls over financial reporting identified in connection with Management’s evaluation that have materially affected or that are reasonablylikely to materially affect these controls.

For Management’s Report on Internal Control Over Financial Reporting and the Reports of Independent Registered Public Accounting Firm, please refer to page 21 of this annual report.
| **ITEM 9B****.** | **   ** | **OTHER INFORMATION** |
|------------------|------------------------|-----------------------|

Not Applicable.

----

**PART III**
| **ITEM 10****.** | **   ** | **DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT** |
|------------------|------------------------|--------------------------------------------------------|

Information concerning directors and executive officers of the Company will be included in the Company’s 2007 definitive proxy materials to be filed with the SEC within 120 days after the end of the Company’s fiscal year covered bythis report and is incorporated herein by reference.  The following sections of the 2007 proxy materials are herein incorporated by reference:  “Election of Directors” (note that information regarding executive officers is included in thissection); information disclosing the Audit Committee financial expert under the “Report of the Audit Committee;” and “Section 16(a) Beneficial Ownership Compliance.”

The Company has adopted a Policy on Business Conduct and Ethics applicable to all employees, officers and directors, which is available in the investor relations section of  the Company’s website atwww.labarge.com.
| **ITEM 11****.** | **   ** | **EXECUTIVE COMPENSATION** |
|------------------|------------------------|----------------------------|

Information concerning executive compensation will be included in the Company’s 2007 definitive proxy materials to be filed with the SEC within 120 days after the end of the Company’s fiscal year covered by this report under the section “Election ofDirectors” and is herein incorporated by reference.
| **ITEM 12****.** | **   ** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|------------------|------------------------|----------------------------------------------------------------------------------------------------|

Information concerning security ownership of certain beneficial owners and management and related stockholder matters will be included in the Company’s 2007 definitive proxy materials to be filed with theSEC within 120 days after the end of the Company’s fiscal year covered by this report under the section “Voting Securities and Ownership Thereof By Management and Certain Beneficial Owners” and is herein incorporated by reference.
| **ITEM 13****.** | **   ** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS** |
|------------------|------------------------|----------------------------------------------------|

Information concerning certain relationships and related transactions, as applicable, will be included in the Company’s 2007 definitive proxy materials to be filed with the SEC within 120 days after the end of the Company’s fiscal year covered by thisreport under the section “Certain Relationships and Related Transactions” and is herein incorporated by reference.
| **ITEM 14****.** | **   ** | **PRINCIPAL ACCOUNTING FEES AND SERVICES** |
|------------------|------------------------|--------------------------------------------|

Information concerning our principal accounting fees and services will be included in the Company’s 2007 definitive proxy materials to be filed with the SEC within 120 days after the end of the Company’s fiscal year covered by this report under thesection “Ratification of Independent Registered Public Accounting Firm” and is herein incorporated by reference.

----

**PART IV**
| **ITEM 15****.** | **   ** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES** |
|------------------|------------------------|------------------------------------------------|
| a.                                                           |     | The following documents are filed as part of this annual report on Form 10-K: (1) Financial Statement and (2) Schedules noted in the “Index to Consolidated Financial Statements and Schedules” on page20 and (3) Exhibits noted under “Exhibits” below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |     |                                                                                                                                                                  |
| b.                                                           |     | Exhibits filed with this annual report on Form 10-K are included under “Exhibits” below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                         |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| c.                                                           |     | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

****

****

**EXHIBITS**
| ExhibitNumber | Description                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1           | Asset Sale and Purchase Agreement dated as of February 17, 2004 by and between LaBarge Electronics, Inc. and Pinnacle Electronics, Inc. previously filed with the Securities and Exchange Commission with theCompany’s Current Report on Form 8-K on February 23, 2004, and incorporated herein by reference.

                                                                                                                                 |
| 3.1           | Restated Certificate of Incorporation, dated October 26, 1995, previously filed as Exhibit 3.1(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 1, 1995 and incorporated hereinby reference.

                                                                                                                                                                                                                   |
| 3.1(a)        | Certificate of Amendment to Restated Certificate of Incorporation, dated November 7, 1997, previously filed as Exhibit 3.1(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 28,1997 and incorporated herein by reference.

                                                                                                                                                                                     |
| 3.2           | By-Laws, as amended, previously filed as Exhibit 3.2(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 1, 1995 and incorporated herein byreference.

                                                                                                                                                                                                                                                             |
| 3.3           | Certificate of Designations for Series C Junior Participating Preferred Stock, previously filed as Exhibit 3 to the Company’s Registration Statement on Form 8-A on September 11, 2001and incorporated herein by reference.

                                                                                                                                                                                                                   |
| 4.1(a)        | Form of Rights Agreement dated as of November 8, 2001, between the Company and UMB Bank, as Rights Agent, which includes as Exhibit B the form of Rights Certificate, previously filed as Exhibit 4 to the Company’sRegistration Statement on Form 8-A on September 11, 2001 and incorporated herein by reference.

                                                                                                                            |
| 4.1(b)        | First Amendment to the Rights Agreement appointing Registrar and Transfer Company as successor Rights Agent with respect to Series C Junior Participating Preferred Stock Purchase Rights, previously filed with Securities &Exchange Commission with the Company’s Current Report on Form 8-K, dated January 4, 2002 and incorporated herein by reference.

                                                                               |
| 10.1          | First Amendment and Restatement to the LaBarge Employees Savings Plan executed on May 3, 1990 and First Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on June 5, 1990,previously filed as Exhibits (i) and (ii), respectively, to the LaBarge, Inc. Employees Savings Plan’s Annual Report on Form 11-K for the year ended December 31, 1990 and incorporated herein by reference.

    |
| 10.2(a)       | Term Loan Promissory Note dated February 17, 2004 in the principal amount of $6,080,000 executed by LaBarge Properties, Inc. and payable to U.S. Bank National Association previously filed with the Company’s CurrentReport on Form 8-K on February 23, 2004 and incorporated herein by reference.

                                                                                                                                      |
| 10.2(b)       | Loan Agreement dated February 17, 2004 by and among the Company, LaBarge Electronics, Inc. and U.S. Bank National Association as agent previously filed with the Company’s CurrentReport on Form 8-K on February 23, 2004 and incorporated herein by reference.

                                                                                                                                                                                    |
| 10.2(c)       | First Amendment to the Loan Agreement dated April 16, 2004 by and among the Company, LaBarge, Electronics, Inc., as borrowers, U.S. Bank National Association and National City Bank of Pennsylvania, as lenders, and U.S. BankNational Association, as agent, previously filed with the Company’s Annual Report on Form 10-K on September 3, 2004 and incorporated herein by reference.                                                             |
| 10.2(d)       | Second Amendment to the Loan Agreement dated August 24, 2005 by and among the Company, LaBarge, Electronics, Inc., as borrowers, U.S. Bank National Association and National City Bank of Pennsylvania, as lenders, and U.S. BankNational Association, as agent. Previously filed with the Company’s Annual Report on Form 10-K on September 8, 2005 and incorporated herein by reference.                                                           |
| 10.2(e)       | Third Amendment to the Loan Agreement dated February 10, 2006 by and among the Company, LaBarge, Electronics, Inc., as borrowers, U.S. Bank National Association and National City Bank of Pennsylvania, as agent, previouslyfiled with the Company’s Current Report on Form 8-K on February 15, 2006 and incorporated herein by reference.                                                                                                          |
| 10.3(a)       | Second Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on November 30, 1993. Previously filed with the Securities and Exchange Commission July 24, 1996 withthe Company’s Registration Statement on Form S-3, No. 333-08675 and incorporated herein by reference.

                                                                                                                       |
| 10.3(b)       | Third Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on March 24, 1994.  Previously filed with the Securities and Exchange Commission on July 24, 1996 with theCompany’s Registration Statement on Form S-3, No. 333-08675 and incorporated herein by reference.

                                                                                                                  |
| 10.3(c)       | Fourth Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on January 3, 1995.  Previously filed with the Securities and Exchange Commission on July 24, 1996with the Company’s Registration Statement on Form S-3, No. 333-08675 and incorporated herein by reference.

                                                                                                                |
| 10.3(d)       | Fifth Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on October 26, 1995.  Previously filed with the Securities and Exchange Commission on July 24, 1996with the Company’s Registration Statement on Form S-3, No. 333-08675 and incorporated herein by reference.

                                                                                                                |
| 10.3(e)       | Sixth Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on January 9, 1998.  Previously filed as Exhibit II, respectively, to the LaBarge, Inc. Employees SavingsPlan’s Annual Report on Form 11-K for the year ended December 31, 1997 and incorporated herein by reference.

                                                                                                        |
| 10.3(f)       | Seventh Amendment to the First Amendment and Restatement of the LaBarge, Inc. Employees Savings Plan executed on August 11, 1999. Previously filed with the Securities and Exchange Commission with the Company’ AnnualReport on Form 10-K on September 27, 1999 and incorporated herein by reference.

                                                                                                |
| 10.4          | LaBarge, Inc. 1993 Incentive Stock Option Plan.  Previously filed with the Securities and Exchange Commission on July 24, 1996 with the Company’s Registration Statement on FormS-3, No. 333-08675and incorporated herein by reference.

                                                                                                                                                                                                  |
| 10.5          | First Amendment to the LaBarge, Inc. 1993 Incentive Stock Option Plan. Previously filed with the Securities and Exchange Commission on July 24, 1996 with the Company’s RegistrationStatement on Form S-3, No. 333-08675 and incorporated herein by reference.

                                                                                                                                                                                |
| 10.6          | Management Retirement Savings Plan of LaBarge, Inc.  Previously filed with the Securities and Exchange Commission on July 24, 1996 with the Company’s Registration Statement onForm S-3, No. 333-08675 and incorporated herein by reference.

                                                                                                                                                                                             |
| 10.7          | LaBarge, Inc. 1995 Incentive Stock Option Plan.  Previously filed with the Securities and Exchange Commission with the Company’s Annual Report on Form 10-K on September 19, 1996and incorporated herein by reference.

                                                                                                                                                                                                              |
| 10.8          | LaBarge, Inc. Employee Stock Purchase Plan.  Previously filed with the Securities and Exchange Commission with the Company’s definitive Proxy Statement on Schedule 14A, filed onSeptember 21, 1998, and incorporated herein by reference.

                                                                                                                                                                                               |
| 10.9          | First Amendment to the LaBarge, Inc. Employee Stock Purchase Plan. Previously filed with the Securities and Exchange Commission with the Company’s Quarterly Report on Form 10-Q on May12, 1999 and incorporated here in by reference.

                                                                                                                                                                                                        |
| 10.10         | LaBarge, Inc. 1999 Non-Qualified Stock Option Plan.  Previously filed with the Company’s definitive Proxy Statement on Schedule 14A filed on October 8, 1999, and incorporated herein by reference.                                                                                                                                                                                                                                        |
| 10.11         | Executive Severance Agreement dated November 8, 1999, between Donald H. Nonnenkamp and LaBarge, Inc., previously filed with Securities and Exchange Commission with the Company’s Annual Report on Form 10-K on September22, 2000, and incorporated herein by reference.

                                                                                                                                                                      |
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.12         | LaBarge, Inc. 2004 Long Term Incentive Plan, previously filed with the Commission with the Company’s Current Report on Form 8-K filed November 2, 2004 and incorporated herein by reference.                                                                                                                                                                                                                                                    |
| 21*           | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 23*           | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                                             |
| 24            | Power of Attorney (see signature page).                                                                                                                                                                                                                                                                                                                                                                                                                    |
|          |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1*         | Certification by Chief Executive Officer pursuant to Exchange Act Rule 13-a - 14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                         |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.2*         | Certification by Chief Financial Officer pursuant to Exchange Act Rule 13-a - 14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                         |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 32.1*         | Certification by Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                   |
| 32.2*         | Certification by Chief Financial Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                  |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

*  Document filed herewith.

----

****

| SIGNATURES |
|------------|

|      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the Report to be signed on its behalf by theundersigned, thereunto duly authorized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Date: September 6, 2006 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | LaBarge, Inc. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | By: | /S/DONALD H. NONNENKAMP |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |          | Donald H. Nonnenkamp Vice President & Chief Financial Officer |

----

| **POWER OF ATTORNEY** |
|-----------------------|

****

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Craig E. LaBarge and Donald H. Nonnenkamp and each of them, and substitutionand re-substitution, for him and in his name, place and stead, in any and all capacities, to sign this Report, any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities andExchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person,herby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereto.

     Pursuant to the requirements of the Securities Act of 1934, the Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dateindicated.
| **SIGNATURE**                                                                                                                                                                                                                                                                                                      |              | **TITLE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              | **DATE**                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                     |    |                                                                                   |    |                                  |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                                                                       |    |                                                                               |
| /s/Craig E. LaBarge                                                                                                                                                                                                                                                                                                |              | Chief Executive Officer, President and Director                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Craig E. LaBarge                                                                                                                                                                                                                                                                                                   |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                                                                                                                                                  |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
| /s/Donald H. Nonnenkamp                                                                                                                                                                                                                                                                                            |              | Vice President, Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Donald H. Nonnenkamp                                                                                                                                                                                                                                                                                               |              | and Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |              |                                                                                                                                                                                                  |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
| /s/Robert H. Chapman                                                                                                                                                                                                                                                                                               |              | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Robert H. Chapman                                                                                                                                                                                                                                                                                                  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |                                                                                                                                                                    |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
| /s/Robert G. Clark                                                                                                                                                                                                                                                                                                 |              | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Robert G. Clark                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                          |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
| /s/Thomas A. Corcoran                                                                                                                                                                                                                                                                                              |              | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Thomas A. Corcoran                                                                                                                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                                                                                                                                                  |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
| /s/John G. Helmkamp, Jr.                                                                                                                                                                                                                                                                                           |              | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| John G. Helmkamp, Jr.                                                                                                                                                                                                                                                                                              |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                               |
| /s/Lawrence J. LeGrand                                                                                                                                                                                                                                                                                             |    | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Lawrence J. LeGrand                                                                                                                                                                                                                                                                                                |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                                                                                                                                                  |
|                                                                                                                                                                                                 |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                  |
| /s/Jack E. Thomas, Jr.                                                                                                                                                                                                                                                                                             |              | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |              | August 23, 2006                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                    |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |              |                                                                                                                                                                                                  |
| Jack E. Thomas, Jr.                                                                                                                                                                                                                                                                                                |              |                                                                                                                                                                                                                                                                                                                                                                                     |              |                                                                                                                                                                                                  |

----

| **LABARGE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **Consolidated Financial Statements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | **                     ** | **    Page** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Management’s Report On Internal Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                | 21 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Reports of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                | 21 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Consolidated Statements of Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Years Ended July 2, 2006, July 3, 2005 and June 27, 2004 |                                            | 23 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Consolidated Balance Sheets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | As of July 2, 2006 and July 3, 2005 |                                            | 24 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Consolidated Statements of Cash Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Years Ended July 2, 2006, July 3, 2005 and June 27, 2004 |                                           | 25 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Consolidated Statements of Stockholders’ Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Years Ended July 2, 2006, July 3, 2005 and June 27, 2004 |                                               | 26 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                   | 27-46 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| All other schedules have been omitted as they are not applicable, not significant, or the required information is given in the consolidated financial statements or note thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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| **                                                                                                                                                                  **                                                                                                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                         |
|        Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in the Securities Exchange Act of 1934, as amended, Rule13a-15(f)). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of July 2, 2006. In makingthis assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the report entitled “Internal Control-Integrated Framework.” Although there are inherentlimitations in the effectiveness of any system of internal control over financial reporting, our management has concluded that, as of July 2, 2006, our internal control over financial reporting is effective based on its evaluation. Our independent registered publicaccounting firm, KPMG LLP, has issued an audit report on our assessment of our internal control over financial reporting, which is included herein. |

| **                                                                                                                                                                                 ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Reports of Independent Registered Public Accounting Firm**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **To the Board of Directors and Stockholders of LaBarge, Inc.:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        We have audited the accompanying consolidated balance sheets of LaBarge, Inc. and subsidiaries as of July 2, 2006 and July 3, 2005, and related consolidated statements of income,stockholders’ equity, and cash flows for each of the years in the three-year period ended July 2, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaBarge, Inc. and subsidiaries as of July 2,2006 and July 3, 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended July 2, 2006, in conformity with U.S. generally accepted accounting principles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 123R “Share-Based Payments,” effectiveJuly 4, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of LaBarge, Inc.’s and subsidiariesinternal control over financial reporting as of July 2, 2006, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report datedSeptember 6, 2006, expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| September 6, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| /s/KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| St. Louis, Missouri                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

****

| **                                                                                                                                                                          **                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **To the Board of Directors and Stockholders of LaBarge, Inc.:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|        We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting on the previous page that LaBarge,Inc. and subsidiaries maintained effective internal control over the financial reporting as of July 2, 2006, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”). LaBarge, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility isto express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for ouropinion.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detectionof unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        In our opinion, management’s assessment that LaBarge, Inc. and subsidiaries maintained effective internal control over financial reporting as of July 2,2006, is fairly stated, in all material respects, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, LaBarge, Inc. and subsidiariesmaintained, in all material respects, effective internal control over financial reporting as of July 2, 2006, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”).                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LaBarge, Inc andsubsidiaries as of July 2, 2006 and July 3, 2005, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended July 2, 2006, and our report dated September 6, 2006, expressed anunqualified opinion on those consolidated financial statements. Our report also refers to the adoption of Statement of Financial Accounting Standards No. 123R “Share-Based Payments,” effective July 4, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| September 6, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| /s/KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| St. Louis, Missouri                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

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| **LaBarge, Inc. CONSOLIDATED STATEMENTS OF INCOME*****(Amounts In Thousands - Except Per-Share Amounts)*** |
|------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                    |                                 | **Year Ended**   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |
| **                                                                                                    ** | ** **                           | **July 2, 2006** | **   ** | July 3, 2005 |     | June 27, 2004 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |   |  |    |  |  |  |  |  |
| **Net sales**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                 | **$**            | **190,089** |   |  | $ | 182,294 |  |  | $ | 131,510 |  |   |
|                                                                                                                    |                                      |                  |   |      |   |  |  |  |  |  |
| **Cost and expenses:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        |                  |  |  |   |  |  |  |   |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Cost of sales                        |             | **149,099** |    |  |   | 141,180 |  |  |   | 101,138 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Selling and administrative expense   |             | **23,037** |   |  |   | 22,979 |  |  |   | 18,828 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Interest expense                     |             | **2,083** |   |  |   | 1,747 |  |  |   | 718 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Other income, net                    |             | **(94** | **)** |  |   | (477 | ) |  |   | (677 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| Earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                 |             |  |   |   |  |   |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | before income taxes                  |                  | **15,964** |   |    |     | 16,865 |  |  | 11,503 |  |
| Income tax expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                      |                  | **6,256** |   |  |  | 5,995 |  |  |  | 4,532 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |             | **9,708** |   |   | 10,870 |  |  |   | 6,971 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                      |                  |  |  |  |  |  |  |  |  |
| **Discontinued operations:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                 |             |  |  |  |  |  |  |  |  |  |  |
|  Loss from discontinued operations, (less                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                 |             |  |   |  |   |  |  |  |   |  |
|   applicable income tax benefit of $70, respectively)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                 | **---**          |  |  | --- |  |  | (114 | ) |
|  Gain on disposal of discontinued operations of $20 (less   applicable income tax expense of $8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      | **---**          |  |  | --- |  |  | 12 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| **                                                                                                  **             |                                 | ** **       | ** ** | ** ** |  |   |  |  |  |   |   |  |
| **Net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                 | **$**            | **9,708** | ** ** |  | $ | 10,870 |  |  | $ | 6,869 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| **                                     **                                                                                                                                                                                                                                                                                                                                                                                           |                                      |                  | **                ** |   |   |  |  |  |   |            |
| **Basic net earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                 |                  |  |  |  |  |  |  |  |  |
| Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                      | **$**            | **0.64** |   |  | $ | 0.72 |   |  | $ | 0.47 |  |
| Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                      |                  | **---** |  |  |  | --- |  |  |  | (0.01 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| **Basic net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                      | **$**            | **0.64** |  |  | $ | 0.72 |  |  | $ | 0.46 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                      | ** **       |  |  |  |  |  |  |  |  |
| **Average shares outstanding**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                      |                  | **15,156** |  |  |  | 15,013 |  |  |  | 14,981 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| **  **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                      |                  |  |  |  |  |  |  |  |
| **Diluted net earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                 |                  |  |  |  |  |  |  |  |  |  |
| Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                      | **$**            | **0.60** |   |  | $ | 0.68 |  |  | $ | 0.45 |  |
| Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                      |                  | **---** |  |  |  | **---** |  |  |  | (0.01 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                      |                  |  |  |  |  |  |  |  |  |  |
| **Diluted net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                      | **$**            | **0.60** |  | $ | 0.68 |  |  | $ | 0.44 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
| **                                                                                                    ** |                                      |                  | **                   ** |  |  |                    |  |  |  |
| **Average diluted shares outstanding**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                      |                  | **16,102** |   |  |  | 15,883 |  |  |  | 15,552 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |                  |  |  |  |  |  |  |  |  |

*See accompanying notes to consolidated financial statements.*

----

****

| **LaBarge, Inc. CONSOLIDATED BALANCE SHEETS*****(Amounts In Thousands -- Except Share Amounts)*** |
|---------------------------------------------------------------------------------------------------|

******
| **   **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ** **                                                                                                                                         | **July 2, 2006**                                                                                                                                                                                                                                                                                                                     |                                                                                                                                      |             | July 3, 2005 |                                                                                                                                                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|-------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
| **                                                                                                                    **                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              | *                   *                             |  |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      |                        |        |              |                                                                                                                                             |
| **Current assets:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      |                                                                |             |         |                          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Cash and cash equivalents                                                                                                                          |                                                                                                                                                                                                                                                                                                                                 | **$**                                                                                                                                | **947**     |         | $                                                                                                                                                | 820 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Accounts and other receivables, net                                                                                                                |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **29,759**  |              |                                                                                                                                             | 23,371 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Inventories                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **53,819**  |              |                                                                                                                                                  | 41,342 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Prepaid expenses                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **1,743**   |              |                                                                                                                                             | 974 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Deferred tax assets, net                                                                                                                           |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **1,395**   |              |                                                                                                                                                  | 1,387 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **Total current assets**                                                                                                                           |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **87,663**  |              |                                                                                                                                                  | 67,894 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |         |
| Property, plant and equipment, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      | **20,453**                                                                                                                           |             |              | 18,849                                                                                                                                           |   |
| Intangible assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      | **2,743**                                                                                                                            |             |         | 3,388                                                                                                                                            |   |
| Goodwill, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      | **24,292**                                                                                                                           |             |         | 24,292                                                                                                                                           |  |
| Other assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      | **5,199**                                                                                                                            |             |         | 5,514                                                                                                                                            |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **Total assets**                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                 | **$**                                                                                                                                | **140,350** |              | $                                                                                                                                                | 119,937 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                  |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |                                                        |
| **Current liabilities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      | **              **                                             |             |              |                                                                                                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Short-term borrowings                                                                                                                              |                                                                                                                                                                                                                                                                                                                                      | **$**                                                                                                                                | **19,475**  |              | $                                                                                                                                                | 1,650 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Current maturities of long-term debt                                                                                                               |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **5,791**   |              |                                                                                                                                                  | 4,661 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Trade accounts payable                                                                                                                             |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **15,714**  |              |                                                                                                                                             | 10,026 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Accrued employee compensation                                                                                                                      |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **7,783**   |              |                                                                                                                                             | 9,511 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Other accrued liabilities                                                                                                                          |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **1,961**   |              |                                                                                                                                             | 2,609 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Cash advances                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      | **5,395**   |              |                                                                                                                                             | 11,445 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Total current liabilities**                                                                                                                      |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **56,119**  |              |                                                                                                                                                  | 39,902 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
| Long-term advances from customers for purchase of materials                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      | **2,760**                                                                                                                            |             |              | 3,854                                                                                                                                            |   |
| Deferred tax liabilities, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      | **235**                                                                                                                              |             |         | 746                                                                                                                                              |  |
| Long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      | **16,402**                                                                                                                           |             |              | 21,605                                                                                                                                           |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                  |
| **Stockholders’ equity:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                               |                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Common stock, $.01 par value.  Authorized 40,000,000 shares; 15,773,253 issued at July 2, 2006 and July 3, 2005, including shares in treasury |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **158**     |              |                                                                                                                                             | 158 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Additional paid-in capital                                                                                                                         |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **15,185**  |              |                                                                                                                                             | 13,722 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Retained earnings                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **52,431**  |              |                                                                                                                                                  | 42,723 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Less cost of common stock in treasury, shares of 606,262 at July 2, 2006 and 723,345 at July 3, 2005                                               |                                                                                                                                                                                                                                                                                                                                      | **(2,940**                                                                                                                           | **)**       | (2,773       | )                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **Total stockholders’ equity**                                                                                                               |                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                      | **64,834**  |              |                                                                                                                                             | 53,830 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                    | **Total liabilities and stockholders’ equity**                                                                                                                                                                                                                                                                                 |                                                                                                                                 | **$**       | **140,350**  |                                                                                                                                                  | $ | 119,937 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                      |             |              |

*See accompanying notes to consolidated financial statements.*

----

****

| **LaBarge, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS*****(Amounts In Thousands)*** |
|-------------------------------------------------------------------------------------|

| **                                                                                     **                                                                                                                                                             | **Year Ended**                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **                                                                                                               ** | ** **                                                                                                                                                                                                                                                                                                                           | **July 2, 2006** | ** ** | July 3, 2005 |   | June 27, 2004 | ** ** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Cash flows from operating activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Net earnings                                                                                                                                                                                                                                                                                                                         |   | **$** | **9,708** | ** ** | $ | 10,870 |   | $ | 6,869 |   |
|   Adjustments to reconcile net cash provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                               |
|   Gain on disposal of discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                      |  | **---** |    | --- |                | (20 | ) |
|   Taxes payable on gain from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                      |  |  | **         ** |  |  |  |  |  |  |
|    (included in other accrued liabilities)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  | --- |  |  | 8 |      |
|   Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                      |  |  |  |  | --- |  |  | 114 |  |
|   Loss on disposal of property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                      |  | **13** |  |  | 16 |  |  | 1 |  |
|   Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                 |   | **4,588** | ** ** |   | 4,302 |   |   | 2,938 |   |
|   Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                      |  | **1,452** |  |  | --- |  |  | --- |  |
|   Other than temporary impairment of investment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                      |  | **181** |  |  | 415 |  |  | --- |  |
|   Impairment of fixed assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  | 137 |  |  | --- |  |
|   Realized gain (loss) on sale of investment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                      |  | **(30** | **)** |  | --- |  |  | (224 | ) |
|   Deferred taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                 |   | **(519** | **) ** |   | 200 |   |   | 96 |   |
|   Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                      |  | **(20** | **)** |  | --- |  |  | (7 | ) |
|  Changes in assets and liabilities, net of acquisitions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                 |                |
|   Accounts and notes receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                 |   | **(6,368** | **)** | **          ** | (1,036 | ) |          | 857 |   |
|   Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                 |   | **(12,477** | **)** |  | (1,140 | ) |   | (7,551 | ) |
|   Prepaid expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                 |   | **(769** | **)** |  | (120 | ) |   | 192 |  |
|   Trade accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                      |  | **5,390** |  |  | (2,473 | ) |  | 1,340 |  |
|   Accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                 |   | **(2,580** | **) ** |  | 1,087 |  |   | 1,183 |   |
|   Advance payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                      |  | **(7,144** | **)** |  | 1,065 |  |  | 7,238 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Net cash (used) provided by continuing operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                 |   | **(8,575** | **)** |   | 13,323 |   |   | 13,034 |   |
| **Net cash provided by discontinued operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  | --- |  |  | 2 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Net cash (used) provided by operating activities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                      |  | **(8,575** | **)** |  | 13,323 |  |  | 13,036 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Cash flows from investing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                     |
|  Acquisition of Pinnacle Electronics LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  | --- |  |  | (43,348 | ) |
|  Additions to property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                 |   | **(3,997** | **)** |   | (3,166 | ) |   | (2,743 | ) |
|  Proceeds from disposal of property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                      |  | **62** |  |  | 2 |  |  | 7 |  |
|  Additions to other assets and intangibles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                 |   | **(588** | **)** |   | (846 | ) |   | (145 | ) |
|  Purchase of securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  | --- |  |  | (1,425 | ) |
|  Proceeds from sale of securities available for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                      |  | **89** |  |  | --- |  |  | 830 |  |
|  Proceeds from disposal of discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                 |   | **---** | ** ** |   | --- |   |   | 225 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Net cash (used) by investing activities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                 |   | **(4,434** | **) ** |   | (4,010 | ) |   | (46,599 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Cash flows from financing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                     |
|  Borrowings on revolving credit facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                      |  | **82,350** |  |  | 55,000 |  |  | 20,100 |  |
|  Payments of revolving credit facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                      |  | **(64,525** | **)** |  | (60,400 | ) |  | (13,050 | ) |
|  Excess tax benefits from disqualifying stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                      |  | **184** |  |  | --- |  |  | --- |  |
|  Additions to long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                 |   | **---** | ** ** |   | --- |   |   | 25,000 |  |
|  Repayments of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                 |   | **(4,737** | **)** |   | (4,419 | ) |   | (1,403 | ) |
|  Issuance of treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                 |   | **756** | ** ** |   | 551 |   |   | 737 |  |
|  Purchase of treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                 |   | **(892** | **)** |   | (76 | ) |   | (1,058 | ) |
|  Additional capital contribution by shareholder                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  | 58 |  |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Net cash provided (used) by financing activities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                 |   | **13,136** |  |   | (9,286 | ) |   | 30,326 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Net increase (decrease) in cash and cash equivalents**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                 |   | **127** |  |   | 27 |  |   | (3,237 | ) |
| **Cash and cash equivalents at beginning of year**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                 | ** ** | **820** | ** ** |   | 793 |   |   | 4,030 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **Cash and cash equivalents at end of period**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                      | **$** | **947** |  | $ | 820 |  | $ | 793 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                      |
| **                                                                                          **                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |
| **                                                          **                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |
| **Non-cash transactions:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                        |  | **             ** | **        ** |             |                               |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Increase in capital lease obligations                                                                                                                                                                                                                                                                                                |   | **$** | **664** |  | $ | --- |  | $ | --- |           |

*See accompanying notes to consolidated financial statements.*

----

**

**LaBarge, Inc.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY*********(Amounts In Thousands -- Except Share Amounts)***

|                                                                                                                                                                                                              |                                             | **Year Ended**                                                                                                                 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  | **July 2,**                                                                                                                    |  | July 3, |    | June 27, |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  | **2006**                                                                                                                       |     | 2005 |  | 2004 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                         |                                             |                       |  |                      |  |                   |   |
| **STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                  |                                                                                                                 |                  |  |     |               |  |     |               |  |
| Common stock, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                             | $                                                                                                                              | 158 |  | $ | 158 |  | $ | 158 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Common stock, end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                             | 158                                                                                                                            |  | 158 |  | 158 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                             |                                                                                                                                |  |  |  |  |   |
| Paid-in capital, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                  | 13,722                                                                                                                         |  | 13,462 |  | 13,486 |  |
| Additional capital contribution from shareholder                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                  | ---                                                                                                                            |  | 58 |  | --- |  |
| Stock compensation programs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                  | 1,463                                                                                                                          |  | 202 |  | (24 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Paid-in capital, end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                  | 15,185                                                                                                                         |  | 13,722 |  | 13,462 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  |                                                                                                                                |  |  |  |  |  |
| Retained earnings, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  | 42,723                                                                                                                         |  | 31,853 |  | 24,984 |  |
| Net earnings for the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                  | 9,708                                                                                                                          |  | 10,870 |  | 6,869 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Retained earnings, end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                  | 52,431                                                                                                                         |  | 42,723 |  | 31,853 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  |                                                                                                                                |  |  |  |  |  |
| Accumulated other comprehensive (loss), beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                  | ---                                                                                                                            |  | 157 |  | --- |  |
| Other comprehensive income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                              | ---                                                                                                                            |  | (157 | ) | 157 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Accumulated other comprehensive income (loss), end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                  | ---                                                                                                                            |  | --- |  | 157 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  |                                                                                                                                |  |  |  |  |  |
| Treasury stock, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                  | (2,773                                                                                                                         | ) | (3,046 | ) | (2,749 | ) |
| Acquisition of treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                  | (892                                                                                                                           | ) | (76 | ) | (1,058 | ) |
| Issuance of treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                  | 725                                                                                                                            |  | 349 |  | 761 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Treasury stock, end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                  | (2,940                                                                                                                         | ) | (2,773 | ) | (3,046 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Total stockholders’ equity                 |                                                                                                                                | $ | 64,834 |  | $ | 53,830 |  | $ | 42,584 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
| **COMPREHENSIVE INCOME**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                  |                                                                                                                                |  |  |  |  |  |
| Net earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                  | $                                                                                                                              | 9,708 |  | $ | 10,870 |  | $ | 6,869 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  |                                                                                                                                |  |  |  |  |  |
| Other comprehensive income (loss):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Change in fair value of securities held for sale |                                                                                                                                | --- |  | (157 | ) | 157 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Total comprehensive income                       |                                                                                                                                | $ | 9,708 |  | $ | 10,713 |  | $ | 7,026 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |  |  |  |  |
|                                                                                                                              |                                                  |                                                                                                                                |  |  |  |  |  |
| **COMMON SHARES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                  |                            |  |                       |  |                     |  |
| Common stock, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  | 15,773,253                                                                                                                     |  | 15,773,253 |  | 15,773,253 |  |
| Changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                  | ---                                                                                                                            |  | --- |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Common stock, shares outstanding, end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                  | 15,773,253                                                                                                                     |  | 15,773,253 |  | 15,773,253 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                  |                       |  |                        |  |                       |  |
| **TREASURY SHARES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                  |                                                                                                                                |  |  |  |  |  |
| Treasury stock, beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                  | (723,345                                                                                                                       | ) | (808,754 | ) | (844,903 | ) |
| Acquisition of shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                  | (68,033                                                                                                                        | ) | (6,315 | ) | (189,743 | ) |
| Issuance of shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                  | 185,116                                                                                                                        |  | 91,724 |  | 225,892 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
| Treasury stock, end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                  | (606,262                                                                                                                       | ) | (723,345 | ) | (808,754 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                  |                                                                                                                                |  |  |  |  |  |

**

*See accompanying notes to consolidated financial statements.*

----

**LaBarge, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
| **1.** | **    ** | **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** |
|--------|------------------------------|------------------------------------------------|

**Nature of Operations**The Company designs, engineers and produces sophisticated electronic systems and devices and complex interconnect systems on a contract basis for its customers in diverse markets. 

Our contract manufacturing capabilities are marketed to companies desiring an engineering and manufacturing partner capable of developing and providing high-reliability electronic equipment, including productscapable of performing in harsh environmental conditions, such as high and low temperature, severe shock and vibration.  The Company serves customers in the defense, aerospace, natural resources, industrial, and other commercial markets.  The group’sengineering and manufacturing facilities are located in Arkansas, Missouri, Oklahoma, Texas and Pennsylvania.

On February 17, 2004, the Company acquired substantially all the assets of Pinnacle Electronics LLC, a complimentary electronics manufacturing services business, for approximately $43.1 million. 

On August 7, 2003, LaBarge, Inc. sold the non-railroad industry portion of its ScadaNET NetworkTM remote equipment monitoring businesses for $225,000.  See Note 2, “Acquisitions, DiscontinuedOperations and Investments.”

**Principles of Consolidation**The consolidated financial statements include the accounts of LaBarge, Inc. and its wholly-owned subsidiaries.  Investments in less than 20%-owned companies are accounted for at cost.

**Accounting Period**The Company uses a fiscal year ending the Sunday closest to June 30.  Fiscal year 2006 consisted of 52 weeks, compared with 53 weeks in fiscal years 2005 and 52 weeks in fiscal year 2004.

**Segment Reporting Policy**The Company reports its operations as one segment.

****

**Use of Estimates**The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from theseestimates.

**Revenue Recognition and Cost of Sales**Revenue is generally recognized on the percentage-of-completion method based upon the units delivered.  The percentage-of-completion method gives effect to the most recent contract value and estimates of cost at completion.  Whenappropriate, contract prices are adjusted for increased scope and other changes ordered or caused by the customer.  When percentage-of-completion is not appropriate, the Company recognizes revenue when title transfers which is usually upon shipment. On a verylimited number of contracts, at a customer’s request, the Company will recognize revenue when ownership passes. As of July 2, 2006 and July 3, 2005, the Company has recognized revenue under these arrangements of $2.4 million and $2.0 million, respectively. TheCompany recognizes revenue for storage and other related services when the services are provided.

Management’s estimates of material, labor and overhead costs on long-term contracts are critical to the Company.  Since some contracts extend over a long period of time, revisions in cost during the progress of workhave the effect of adjusting current period earnings applicable to performance in prior periods. When the current contract cost estimate indicates a loss, provision is made for the total anticipated loss in the period the loss becomes evident.

**Accounts Receivable**Accounts receivable have been reduced by an allowance for amounts that management estimates are un-collectable.  This estimated allowance is based primarily on management’s evaluation of the financial condition ofthe Company’s customers.

The Company does not believe that concentration of accounts receivable is a significant credit risk due to the financial strength of the account debtors and collection experience.

**Inventories**Inventories are valued at the lower of cost or market.  If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The Company procures materials and manufactures products to customer requirements. Raw materials are stated at the lower of cost or market as determined by the weighted average cost method.

Work in process consists of actual production costs, including factory overhead and tooling costs, reduced by costs attributable to units for which sales have been recognized.  Such costs under contracts aredetermined by the average cost method based on the estimated average cost of all units expected to be produced under the contract. Inventories relating to long-term contracts are classified as current assets although a portion of the inventory is not expected to berealized within one year.

**Income Taxes**Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases.  The Company has considered future taxable income analyses and feasible tax planning strategies in assessing the need for the valuation allowance. Should the Company determinethat it would not be able to recognize all or part of its net deferred tax assets in the future, an adjustment to the carrying value of the deferred tax assets would be charged to income in the period in which such determination is made.

**Goodwill and Other Intangibles**Intangible assets deemed to have indefinite lives and goodwill are not subject to amortization. All other intangible assets are amortized over the estimated useful live. Goodwill and other intangible assets not subjectamortization are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. This testing requires comparison of carrying values to fair values, and when appropriate, the carrying value ofimpaired assets is reduced to fair value. The Company estimates fair value using available information regarding expected future cash flows and a discount rate that is based upon the cost of capital specific to the Company

**Fair Value of Financial Instruments**The Company considered the carrying amounts of cash and cash equivalents, securities and other, including accounts receivable and accounts payable to approximate fair value because of the short maturity of these financialinstruments.

The Company has considered amounts outstanding under the term loan and the Industrial Revenue Bonds and determined that carrying amounts recorded on the financial statement are consistent with the estimated fair value as ofJuly 2, 2006.

****

**Property, Plant and Equipment**Property, plant and equipment is carried at cost and includes additions and improvement which extend the remaining useful life of the assets.  Depreciation is computed on the straight-line method.

**Cash Equivalents**The Company considers cash equivalents to be temporary investments which are readily convertible to cash, such as certificates of deposit, commercial paper and treasury bills with original maturities of less than threemonths.

**Cash Advances**The Company receives cash advances from customers under certain contracts. Cash advances are usually liquidated over the period of product deliveries.

**Employee Benefit Plans**The Company has a contributory savings plan covering certain employees.  The Company expenses all plan costs as incurred.

The Company offers a non-qualified deferred compensation program to certain key employees whereby they may defer a portion of their annual compensation for payment upon retirement plus a guaranteed return. The program is unfunded; however, the Company purchases Company-owned life insurance contracts through which the Company will recover a portion of its cost upon the death of the employee.

The Company also offers an employee stock purchase plan that allows any eligible employee to purchase common stock at the end of each quarter at 15% below the market price as of the first or last day of thequarter, whichever is lower. The Company recognizes an expense for the 15% discount.

**Stock-Based Compensation**As of July 2, 2006, the Company had previously established a number of share incentive programs, which are discussed in more detail in Note 13.  Prior to fiscal 2006, the Company applied the intrinsic value-based method asoutlined in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and related interpretations, in accounting for stock options and share units granted under these programs. Under the intrinsicvalue-based method, no compensation expense was recognized if the exercise price of the Company’s employee stock options was equal to or greater than the market price of the underlying stock on the date of the grant. Accordingly, prior to fiscal year 2006, nocompensation cost was recognized in the accompanying consolidated statements of income on stock options granted to employees, since all options granted under the Company’s share incentive programs had an exercise price equal to or greater than the market valueof the underlying common stock on the date of the grant.

Effective July 4, 2005, the Company adopted SFAS “Share-Based Payment” (“SFAS No. 123R”). This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APBNo. 25.  SFAS No. 123R requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award.  This statement was adopted using the modified prospective method ofapplication, which requires the Company to recognize compensation expense on a prospective basis. Therefore, prior-period financial statements have not been restated. Under this method, in addition to reflecting compensation expense for new share-based awards,expense is also recognized to reflect the remaining service period of awards that had been included in pro forma disclosures in prior periods. SFAS No. 123R also requires that excess tax benefits related to stock option exercises be reflected as financing cashinflows instead of operating cash inflows.

During the fiscal year ended July 2, 2006, the Company was notified that shares issued upon the exercise of incentive stock options (“ISOs”) were sold prior to being held by the employee for 12 months.  Thesedisqualifying dispositions resulted in an excess tax benefit for the Company.  Since the ISOs vested prior to adoption of SFAS No. 123R, the entire tax benefit of $184,000 was recorded as an increase to additional paid-in capital.

For the fiscal year ended July 2, 2006, total stock-based compensation was $1,452,000 ($902,000 after tax), equivalent to earnings per basic and diluted share of $0.06.

For the fiscal year ended July 2, 2006, stock-based compensation attributable to the adoption of SFAS No. 123R was $629,000 ($391,000 after tax), equivalent to earnings per basic and diluted share of$0.02.

As of July 2, 2006, the total unrecognized compensation expense related to nonvested awards, including stock options and performance units, was $1.2 million pretax and the period over which it is expected to berecognized is approximately 1.6 years.

The following table illustrates the effect on net income and earnings per share as if SFAS No. 123R had been applied to all outstanding awards for the years ended July 2, 2006, July 3, 2005 and June 27,2004:

*(dollars in thousands, except per-share amounts)*

|                                                                        | **Fiscal Year Ended**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **July 2,** |  |  |  | July 3, |  |  |  | June 27, |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **2006** |  |  |  | 2005 |  |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
| Net earnings, as reported                                                                                                                                                                                                                                                                                                                                                                                                            | **$**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **9,708** |   |   | $ | 10,870 |   |   | $ | 6,869 |   |
| Add: Stock-based employee compensation expense included in reported net income,                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
|    net of related tax effects                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **902** |  |  |  | 124 |  |  |  | --- |  |
| Deduct: Total stock-based employee compensation expense determined under                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **             ** |  |  |  |                   |  |  |  |                 |  |
|    fair value based method for all awards,                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
|    net of related tax effects                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **(902** | **)** |  |  | (1,021 | ) |  |  | (295 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
| Pro forma net earnings                                                                                                                                                                                                                                                                                                                                                                                                               | **   **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **9,708** |   |  |  | 9,973 |  |  |  | 6,574 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
| **Net earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                |
| Basic -- as reported                                                                                                                                                                                                                                                                                                                                                                                                                 | ** $**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **0.64** |   |   | $ | 0.72 |   |   | $ | 0.46 |   |
| Basic -- pro forma                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **0.64** |  |  |  | 0.66 |  |  |  | 0.44 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
| Diluted -- as reported                                                                                                                                                                                                                                                                                                                                                                                                               | **$**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **0.60** |   |   | $ | 0.68 |   |   | $ | 0.44 |   |
| Diluted -- pro forma                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **0.60** |  |  |  | 0.63 |  |  |  | 0. 42 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |

No stock options were issued in the year ended July 2, 2006. On January 11, 2005, the Company awarded performance units tied to fiscal year 2006 financial performance to certain key executives. Compensation expenserelated to these awards was recognized in the 2006 fiscal year, and 79,693 shares are included in the dilutive shares, as the performance condition had been met at July 2, 2006. On January 11, 2005, the Company awarded performance units tied to fiscal year 2005financial performance to certain key executives. The Company issued 56,251 shares related to this award and related compensation expense was recognized in fiscal years 2006 and 2005.

All stock options were granted at prices not less than fair market value of the common stock at the grant date.  The fair value of stock options granted in fiscal years 2005 and 2004 was estimated on the date of grantusing the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 3.8% and 3.3%, respectively; expected dividend yield of 0%; expected life of six years; and expected volatility of 66.5% and 49%,respectively.

All stock options outstanding at July 2, 2006 and July 3, 2005 were dilutive and included in the computation of diluted earnings per share.  Options to purchase 59,275 shares (at a per-share price of $5.97 to$7.24) were outstanding during the fiscal year ended June 27, 2004 and were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of common shares. These options expire in variousperiods through 2014.

**Recently Issued Accounting Standards**In June 2006, the FASB issued FASB Interpretation Number (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  FIN 48 establishes a recognition threshold and measurement for income taxpositions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”  FIN 48 also prescribes a two-step evaluation process for tax positions.  The first step is recognitionand the second is measurement.  For recognition, an enterprise judgmentally determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on thetechnical merits of the position.  If the tax position meets the more-likely-than-not recognition threshold it is measured and recognized in the financial statements as the largest amount of tax benefit that is greater than 50% likely of being realized.  Ifa tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements.

Tax positions that meet the more-likely-than-not recognition threshold at the effective date of FIN 48 may be recognized or, continue to be recognized, upon adoption of FIN 48.  The cumulative effect of applying theprovisions of FIN 48 shall be reported as an adjustment to the opening balance of retained earnings for that fiscal year.  FIN 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted.  The Company is currentlyevaluating the impact FIN 48 will have on its consolidated financial statements when it becomes effective for the Company in fiscal 2008 and is unable, at this time, to quantify the impact, if any, to retained earnings at the time of adoption.
| **2.** | **    ** | **ACQUISITIONS, DISCONTINUED OPERATIONS AND INVESTMENTS** |
|--------|------------------------------|-----------------------------------------------------------|

**Acquisitions**On February 17, 2004, the Company acquired substantially all of the assets of Pinnacle Electronics LLC.  The acquired assets supplement the Company’s electronics manufacturing services (“EMS”) business with a leased location in metropolitanPittsburgh, Pennsylvania, adding substantial commercial/industrial sales to the Company’s customer mix.  Pinnacle’s commercial/industrial market expertise, supported by a strong management team, supplements the Company’s historic position inthe government/defense marketplace.

The Pittsburgh operation designs, engineers and manufactures printed circuit card assemblies, cables and harnesses, full “box-build” assemblies and electronic/electromechanical systems for customerapplications in a variety of commercial/industrial markets.

The purchase price for the acquired assets was $43.1 million, which included a post-closing working capital adjustment of approximately $2.1 million, funded by senior bank debt and cash on hand.  In addition,the Company assumed working capital liabilities of approximately $3.7 million, primarily trade accounts payable, and incurred transaction costs of approximately $0.3 million.

Under the purchase method of accounting, the initial purchase price is allocated to Pinnacle’s net tangible and intangible assets and liabilities based upon their fair value as of the date of theacquisition. The final purchase price allocation, which included purchase price adjustments of $179,000, is as follows:

*(dollars in thousands)*
|                                                                                     | **At July 3, 2005**                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Current assets                                                                                                                                                                                                                                                                                                                                                                                                                       | $                                                                              | 14,791 |                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                               |                                        | 4,350 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                | 3,800 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                | 24,089 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |     Total assets acquired                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                | 47,030 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                        |                                                       |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                | 3,678 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Long-term liabilities                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                | 4 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |     Total liabilities assumed                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                | 3,682 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Net assets acquired                                                                                                                                                                                                                                                                                                                                                                                                                  | $                                                                              | 43,348 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                        |               |  |  |

The Company believes that substantially all of the goodwill will be deductible for tax purposes.  Intangible assets consist of $3.4 million of a “Customer List” asset which will be amortized oversix years and $0.4 million of “Employee Non-Compete Contracts” assets which will be amortized over three and one half years. 

The following table represents LaBarge’s pro forma consolidated results of operations as if the acquisition of Pinnacle had occurred at the beginning of each period presented.  Such results have beenprepared by adjusting the historical LaBarge results to include Pinnacle results of operations and incremental interest and other expenses related to acquisition debt.  The pro forma results do not include any cost savings that may result from the combination ofLaBarge and Pinnacle operations.  The pro forma results may not necessarily reflect the consolidated operations that would have existed had the acquisition been completed at the beginning of such periods nor are they necessarily indicative of futureresults.

*(dollars in thousands, except per-share amounts)*
|                                                          | **Fiscal Year Ended**      |                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------|------------------|
|                                                                                                                                                                                                                                                                                                                    |                            |                  |  |  |  |  |
|                                                          | **July 2,**                | **  ** | July 3, |  | June 27, |      |
|                                                     | **2006**                   |                  | 2005 |     | 2004 |  |
|                                                                    | *actual*                   |                  | *actual* |  | *pro forma**(unaudited)* |  |
|                                                                                                                                                                                                                                                                                                                    |                            |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                               | Net sales                  | **$**            | **190,089** | ** ** |  $ | 182,294 |  | $ | 156,339 |    |
|                                                                                                                                                                                                                                                                                                               | Net earnings               |                  | **9,708** |  | 10,870 |  |  | 8,054 |  |
|                                                                                                                                                                                                                                                                                                                    |                            |                  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                               | Basic earnings per share   | **$**            | **0.64** | ** ** |  | 0.72 |  | $ | 0.54 |    |
|                                                                                                                                                                                                                                                                                                               | Diluted earnings per share |                  | **0.60** |  | 0.68 |  |  | 0.52 |  |
|                                                                                                                                                                                                                                                                                                                    |                            |                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                    |                            |                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                    |                            |                  |  |  |  |  |  |  |  |

**Discontinued Operations**On August 7, 2003, the Company sold the remainder of its ScadaNET NetworkTM business for $225,000 cash.  The Company recorded a $20,000 pretax gain on the transaction.  This sale completed the Company’s exit from theScadaNET NetworkTM business.  On November 1, 2002, LaBarge, Inc. sold the railroad industry portion of its ScadaNET NetworkTM remote equipment monitoring business to GE Transportation Systems Global Signaling LLC, Grain Valley, Missouri.  TheScadaNET Network remote equipment monitoring business had been operated as the Network Technologies Group.

*(dollars in thousands)*
|                                                                          | **Fiscal Year Ended**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |   | **July 2,** | July 3, |      | June 27, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |  | **2006** | 2005 |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
| ScadaNET Network business                                                                                                                                                                                                                                                                                                                                                                                                                        |                        |  | **---** | **  ** |  | --- |    |      | 38 |     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
| Net sales on discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                             |                        | **$** | **---** | ** ** | $ | --- |  |  | $ | 38 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
| ScadaNET Network business                                                                                                                                                                                                                                                                                                                                                                                                                        | **   ** | **---** |  |    | --- |  |     | (114 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |
| Loss on discontinued operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                      |                        | **$** | **---** |  | $ | --- |  | $ | (114 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |

**
| **3.** | **   ** | **GROSS AND NET SALES** |
|--------|------------------------|-------------------------|

Gross and net sales consist of the following:*(dollars in thousands)*
|                                                    | **Fiscal Year Ended** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                                                                                                                                                                                                              |                       |
|                                                                                                                                                                                                                                                                                                         | **July 2,**           |       | July 3, |    |       | June 27, |  |
|                                                                                                                                                                                                                                                                                |                       |    | **2006** |    | 2005 |   |   | 2004 |  |
|                                                                                                                                                                                                                                                                                                              |                       |  |  |  |  |  |  |  |  |
| Gross sales                                                                                                                                                                                                                                                                                                  |                       | **$** | **191,305** |     | $ | 182,863 |   | $ | 133,084 |  |
| Less sales discounts                                                                                                                                                                                                                                                                                         |                  | ** ** | **1,216** |     |    | 569 |     |    | 1,574 |  |
|                                                                                                                                                                                                                                                                                                              |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                     |                  | ** ** | **   ** |     |    |  |    |     |  |     |
| Net sales                                                                                                                                                                                                                                                                                                    |                       | **$** | **190,089** |     | $ | 182,294 |   | $ | 131,510 |  |
|                                                                                                                                                                                                                                                                                                              |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                              |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                              |                       |  |  |  |  |  |  |  |  |  |

****

**Geographic Information**The Company has no sales offices or facilities outside of the United States.  Sales for exports did not exceed 10% of total sales in any fiscal year.

**Customer Information**

Customers accounting for more than 10% of net sales for the years ended July 2, 2006, July 3, 2005 and June 27, 2004 were as follows:
| Customer            | **2006**                                                                     |         | 2005                                                                     |      | 2004               |          |
|---------------------|------------------------------------------------------------------------------|--------------------------------------------|--------------------------------------------------------------------------|--------------------------|--------------------|----------|
|                     |                                                                              |                                            |                                                                          |                          |                    |          |  |  |  |  |
|    1 | **            ** | **12%**                                    |                                            |                          | 11%                |          |   | 17% |  |   |
|    2 | **     **                                           | **12**                                     |              | 11                  |     |     | 10  |   |   |
|    3 |                                                                         |                                            | **11**                                                                   |                          |                    | 10  |  |  | 9  |  |   |
|                     |                                                                              |                                            |                                                                          |                          |                    |          |  |  |  |  |
| **4.** | **   ** | **ACCOUNTS AND OTHER RECEIVABLES** |
|--------|------------------------|------------------------------------|

Accounts and other receivables consist of the following:*(dollars in thousands)*
|                                                                                          | **July 2,**      |     | July 3,                                                            |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|--------------------|--------------------------------------------------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **2006**         |                    | 2005                                                               |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  |                    |                                                                    |   |  |  |
| Billed shipments, net of progress payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | **$**            | **28,886**         |             | $ | 23,352 |  |
| Less allowance for doubtful accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **  ** | **174**            |                                                                    |   | 326 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  |                    |                                                                    |   |  |  |
| Trade receivables, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                  | **28,712**         |                                                                    |   | 23,026 |  |
| Other current receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                  | **1,047**          |                                                                    |   | 345 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  |                    |                                                                    |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                         | **$**            | **29,759**         |                                                                    | $ | 23,371 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  |                    |                                                                    |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  |                    |                                                                    |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  |                    |                                                                    |   |  |  |

Progress payments are payments from customers in accordance with contractual terms for contract costs incurred to date.  Such payments are recognized as revenue when the completed units are shipped.

At July 2, 2006, the amounts due from the three largest accounts receivable debtors and the percentage of total accounts receivable represented by those amounts were $4.9 million (17%), $2.4 million (8%), and $2.1million (7%). This compares with $3.0 million (15%), $2.8 million (13%), and $2.5 million (12%) at July 3, 2005.

Included in other current receivables at July 2, 2006 was $885,000 related to a contractually guaranteed reimbursement for a manufacturing feasibility study.

**Allowance for Doubtful Accounts**This account represents amounts that may be uncollectible in future periods.
| **                                  ** |  | **   ** | **Additions/** | **     ** | **               ** | **                                ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------------------------|----------------|------------------------------------|------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                  |  |                        | **Balance**    |                                    |                                                                                                | **(Recoveries)**                                                                                                                                                                                     |  |  |  |  |  | **Balance** |  |
|                                                                                                                                                                                                                  |  |                        | **Beginning**  |                                    |                                                                                                | **Charged to**                                                                                                                                                                                       |  |  |  |  |  | **End of** |  |
| **Year**                                                                                                                                                                                                         |  |                        | **of Period**  |                                    |                                                                                                | **Expense**                                                                                                                                                                                          |  |  | **Deductions** |  |  | **Period** |  |
|                                                                                                                                                                                                                  |  |                        |                |                                    |                                                                                                |                                                                                                                                                                                                      |  |  |  |  |  |  |  |
| 2004                                                                                                                                                                                                             |  | $                      | 100            |                          | $                                                                                              | 296                                                                                                                                                                                                  |    | $ | 27 |    | $ | 369 |  |
| 2005                                                                                                                                                                                                             |  |                        | 369            |                                    |                                                                                                | (38                                                                                                                                                                                                  | ) |  | 5 |  |  | 326 |  |
| **2006**                                                                                                                                                                                                         |  |                        | **326**        |                                    |                                                                                                | **(65**                                                                                                                                                                                              | **)** |  | **87** |  |  | **174** |  |
|                                                                                                                                                                                                                  |  |                        |                |                                    |                                                                                                |                                                                                                                                                                                                      |  |  |  |  |  |  |  |
| **5.** | **   ** | **INVENTORIES** |
|--------|------------------------|-----------------|

Inventories consist of the following:*(dollars in thousands)*
|                                                                                             | **July 2,** |             | July 3,                                                                  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|--------------------------------------------------------------------|--------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |             | **2006**                                                           |                                                                          | 2005   |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |             |                                                                    |                                                                          |        |  |  |
| Raw materials                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$**       | **35,889**                                                         |              | $      | 29,324 |          |
| Work in progress                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** **  | **17,930**                                                         |                                                                          |        | 12,018 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |             |                                                                    |                                                                          |        |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | **$**       | **53,819**                                                         |                        | $      | 41,342 |          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |             |                                                                    |                                                                          |        |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |             |                                                                    |                                                                          |        |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |             |                                                                    |                                                                          |        |  |  |

In accordance with contractual agreements, the U.S. Government has a security interest in inventories identified with contracts for which progress payments have been received.

For the fiscal years ended July 2, 2006, July 3, 2005 and June 27, 2004, expense for obsolete or slow moving inventory charged to income before income taxes was $0.9 million, $1.0 million and $0.8 million,respectively.
| **6.** | **   ** | **PROPERTY, PLANT AND EQUIPMENT** |
|--------|------------------------|-----------------------------------|

Property, plant and equipment is summarized as follows:*(dollars in thousands)*
|                                                          |         |                                      | **                                      ** |                                                          |                                 |    | Estimated                      |          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------|--------------------|
|                                                                                                                                                                                                                                                                                                                                                  |         |                                                | **July 2,**                                                                                                                                                                                                                              |                                                     | July 3,                                                                                                                                                                                    |    | useful life                    |     |
|                                                                                                                                                                                                                                                                                                                                                  |              |                                                | **2006**                                                                                                                                                                                                                                 |                                                                    | 2005                                                                                                                                                                                       |              | in years                       |                    |
|                                                                                                                                                                                                                                                                                                                                                  |
| Land                                                                                                                                                                                                                                                                                                                                             |    | **$**                                          | **2,458**                                                                                                                                                                                                                                |             | $                                                                                                                                                                                          | 2,458        |       |                    | --- |  |
| Building and improvements                                                                                                                                                                                                                                                                                                                        |              | **       ** | **9,090**                                                                                                                                                                                                                                |                                                                    |                                                                                                                                                                             | 8,847        |                                |     | 5-33 |  |
| Leasehold improvements                                                                                                                                                                                                                                                                                                                           |              |                                                | **3,838**                                                                                                                                                                                                                                |                                                                    |                                                                                                                                                                                       | 3,160        |                                |                    | 2-10 |  |
| Machinery and equipment                                                                                                                                                                                                                                                                                                                          |              |                                                | **23,755**                                                                                                                                                                                                                               |                                                                    |                                                                                                                                                                                            | 19,853       |                                |                    | 2-12 |  |
| Furniture and fixtures                                                                                                                                                                                                                                                                                                                           |              |                                                | **1,947**                                                                                                                                                                                                                                |                                                                    |                                                                                                                                                                                            | 1,911        |                                |                    | 5-20 |  |
| Computer equipment                                                                                                                                                                                                                                                                                                                               |              |                                                | **2,583**                                                                                                                                                                                                                                |                                                                    |                                                                                                                                                                                            | 3,492        |                                |                    | 3 |  |
| Construction in progress                                                                                                                                                                                                                                                                                                                         |              |                                                | **220**                                                                                                                                                                                                                                  |                                                                    |                                                                                                                                                                                            | 537          |                                |                    | --- |  |
|                                                                                                                                                                                                                                                                                                                                                  |              |                                                |                                                                                                                                                                                                                                          |                                                                    |                                                                                                                                                                                            |              |                                |                    |  |  |
|                                                          |              |                                                | **43,891**                                                                                                                                                                                                                               |                                                                    |                                                                                                                                                                                            | 40,258       |                                |                    |  |  |
| Less accumulated depreciation                                                                                                                                                                                                                                                                                                                    |              |                                                | **23,438**                                                                                                                                                                                                                               |                                                                    |                                                                                                                                                                                            | 21,409       |                                |                    |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |              |                                                |                                                                                                                                                                                                                                          |                                                                    |                                                                                                                                                                                            |              |                                |                    |  |  |
|                                                          |              | **$**                                          | **20,453**                                                                                                                                                                                                                               |                                                                    | $                                                                                                                                                                                          | 18,849       |                                |                    |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                  |

Depreciation expense was $3.3 million,  $3.2 million and $2.4 million for the fiscal years ended July 2, 2006, July 3, 2005 and June 27, 2004 respectively.
| **7.** | **   ** | **INTANGIBLE ASSETS, NET** |
|--------|------------------------|----------------------------|

Intangible assets, net, are summarized as follows:*(dollars in thousands)*
|                                                                                          |         | **July 2,**                        |        | July 3,                                                                        |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|------------------------------------|--------------------------------------|--------------------------------------------------------------------------------|--------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   | **2006**                           |                                      | 2005                                                                           |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
| Software                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **$**             | **3,228**                          |                                      | $                                                                              | 2,722        |  |
| Less accumulated amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   | **2,661**                          |                                      |                                                                                | 2,192        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Net software      |                                    |                                      | **567**                                                                        |              |  | 530 |  |
| Customer list                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |         | **     ** | **3,400**                            |                                                                                |              | 3,400 |  |
| Less accumulated amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   |                                    | **1,351**                            |                                                                                |              | 785 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Net customer list |                                    | **2,049**                            |                                                                                |              | 2,615 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
| Other, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                   | **127**                            |                                      |                                                                                | 243          |             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                   | **$**                              | **2,743**                            |               | $            | 3,388 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |                                    |                                      |                                                                                |              |  |

Intangibles are amortized over a three- to six-year period.  Amortization expense was $1.2 million, $1.1 million and $0.5 million for the fiscal years ended July 2, 2006, July 3, 2005 and June 27, 2004,respectively.

The Company anticipates that amortization expense will approximate $1.3 million for fiscal years 2007, $1.2 million for fiscal year 2008, $1.1 million for fiscal year 2009, $0.8 million for fiscal year 2010and $0.5 million for fiscal year 2011.
| **8.** | **   ** | **GOODWILL** |
|--------|------------------------|--------------|

Goodwill is summarized as follows:*(dollars in thousands)*
|                                                                                          |    | **July 2,** |        | July 3,      |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------|--------------------------------------|--------------|--------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              | **2006**    |                                      | 2005         |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |             |                                      |              |              |  |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **$**        | **24,492**  |                                      | $            | 24,492       |  |
| Less accumulated amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |              | **200**     |                                      |    | 200          |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |             |                                      |              |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Net goodwill | **$**       | **24,292**                           |              | $            | 24,292 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |             |                                      |              |              |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |             |                                      |              |              |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |             |                                      |              |              |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |              |             |                                      |              |              |  |

There were no changes in the carrying amount of goodwill for the period ended July 2, 2006.
| **9.** | **   ** | **OTHER ASSETS** |
|--------|------------------------|------------------|

Other assets is summarized as follows:

*(dollars in thousands)*
|                                                                                          |              | **July 2,** |      | July 3,      |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|-------------|--------------------------|--------------|--------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        | **2006**    |                          | 2005         |              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |             |                          |              |              |  |
| Cash value of life insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **$**                  | **4,285**   |                          | $            | 3,934        |  |
| Deposits, licenses and other, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **   ** | **390**     |                          |    | 688          |  |
| Securities held for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                        | **264**     |                          |              | 504          |  |
| Deferred financing costs, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                        | **173**     |                          |              | 239          |  |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                        | **87**      |                          |              | 149          |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |             |                          |              |              |  |
|                                                                                                                                                                                                                                                                                                                           | **$**                  | **5,199**   |                          | $            | 5,514        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |             |                          |              |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |             |                          |              |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |             |                          |              |              |  |

The Company’s investment in securities held for sale of $264,000 at July 2, 2006, consists of 1.6 million shares of Norwood Abbey Ltd.  This investment is the result of shares and options acquired as a partialsettlement of a note receivable.

In the year ended July 2, 2006, the Company sold 210,000 shares at a pretax gain of $30,000.  In addition, an other-than-temporary write down of the remaining shares occurred in the year ended July 2,2006, resulting in the recognition of $181,000 pretax expense ($112,000 after-tax).
| **10.** | **   ** | **SHORT- AND LONG-TERM OBLIGATIONS** |
|---------|------------------------|--------------------------------------|

Short-term borrowings, long-term debt and the current maturities of long-term debt consist of the following:

*(dollars in thousands)*
|                                                                                                   |                                 | **July 2,** |            | July 3,                              |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|-------------|------------|--------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                | **2006**    |            | 2005                                 |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
| **Short-term borrowings:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** **                                     |             |            |                                 |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Revolving credit agreement:                    |             |            |                                      |        |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Balance at year-end                            | **$**       | **19,475** |                                      | $      | 1,650 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Interest rate at year-end                      |             | **7.28**   | %                                    |        | 6.25 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Average amount of short-term borrowings        |             |            |                                      |        |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | outstanding during period                      | **$**       | **8,729**  |                                      | $      | 7,922 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Average interest rate for fiscal year          | ** **  | **6.85**   | **%**                                |        | 4.48 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Maximum short-term borrowings at any month-end | **$**       | **19,475** |                                      | $      | 11,650 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
| **Senior long-term debt:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                |             |            |                                      |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Senior lender:                                 |             |            |                                      |        |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Term loan                                      | **$**       | **15,750** |                                      | $      | 20,000 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Mortgage loan                                  |             | **5,483**  |        |        | 5,738 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Other                                          |             | **960**    |                                      |        | 528 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
| Total senior long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** **                                     | **22,193**  |            |                                      | 26,266 |  |
| Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                | **5,791**   |            |                                      | 4,661  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
| Long-term debt, less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **$**                                          | **16,402**  |            | $                                    | 21,605 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                |             |            |                                      |        |  |

The average interest rate was computed by dividing the sum of daily interest costs by the sum of the daily borrowings for the respective periods.

Total cash payments for interest in fiscal years 2006, 2005 and 2004 were $1.9 million, $1.6 million and $0.6 million, respectively.

The Company entered into a senior loan agreement on February 17, 2004, which was amended in February 2006.  The Company incurred $330,000 of financing costs that have been deferred and will be amortized overa period beginning May 2004 and ending February 2009.  At July 2, 2006, the unamortized amount was $173,000.

**Senior Lender:**

****

The Company entered into a senior secured loan agreement with a group of banks on February 17, 2004 that was amended on February 10, 2006, increasing the revolving credit facility by $10.0 million.  The following is asummary of the agreement:
|  •                   |   | A revolving credit facility up to $30.0 million, available for direct borrowings or letters of credit.  The facility is based on a borrowing base formula equal to the sum of 85% of eligible receivables and 35% of eligibleinventories. As of July 2, 2006, outstanding loans under the revolving credit facility were $19.5 million.  Letters of credit outstanding were $1.6 million, and $8.9 million was available at July 2, 2006. This credit facility matures on February 17,2009.                                                                                                                                                                                                                                                                                                                                                                                 |              |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                    |                                                                          |
|  •                   |   | A $25.0 million term loan amortized beginning May 2004, at a quarterly rate of $1.0 million, increased to $1.25 million in May 2006 and increasing to $1.5 million in May 2007.  Final maturity is February2009.  As of July 2, 2006, the amount outstanding was $15.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                          |
|  •                   |        | On April 15, 2004, the Company entered into an Interest Rate Cap Agreement with a bank.  This Cap Agreement caps the Company’s exposure to increases in LIBOR at 4% for a period of three years on a notional amountbeginning at $24.0 million and amortizing on a schedule that matches amortization of the $25.0 million term loan dated February 17, 2004. As a result of this Cap Agreement, for the year-ended period, interest expense was reduced by $72,000.                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                          |
|                                |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                          |
|  •                   |        | Interest on both loans is at a percentage of prime or a stated rate over LIBOR based on certain ratios.  For the year ended July 2, 2006, the average rate was approximately 5.89%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                          |
|       |   |                                                                                                                                                 |                                                                          |
|  •                   |   | Both loans are secured by substantially all the assets of the Company other than real estate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                          |
|                           |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                          |
|  •                   |        | Covenants and performance criteria consist of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) in relation to debt, EBITDA in relation to fixed charges and minimum net worth. The Company isin compliance with its borrowing agreement covenants as of July 2, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                          |
|            |   |                                                                                                                                                           |                                                                     |

***Other Long-term Debt:****Mortgage Loan:*The Company has a $6.4 million term loan secured by the Company’s headquarters building in St. Louis, Missouri.  The loan repayment schedule is based on a 25-year amortization with a final balloon payment due in October2009.  The balance at July 2, 2006 was $5.5 million.  Interest is at a percentage of prime or a stated rate over LIBOR based on certain ratios.  For the year ended July 2, 2006, the average rate was approximately 4.82%.

*****Industrial Revenue Bonds:*In July 1998, the Company acquired tax-exempt Industrial Revenue Bond financing in the amount of $1.3 million.  The debt is payable over 10 years with an interest rate of 5.28%.  This funding was used to expand the Berryville,Arkansas, facility.  The outstanding balance at July 2, 2006 was $369,000.

*Capital Lease Obligations:*

In October 2005, the Company entered into a capital lease agreement to fund the purchase of machinery with a fair market value of $664,000. The lease is for five years with an interest rate of 6.18%. The obligation outstandingat July 2, 2006 was $587,000.

The aggregate maturities of long-term obligations are as follows:*(dollars in thousands)*
| **Fiscal Year**               |
|-------------------------------|
|                               |
| 2007                          | ...............................................................  | $ | 5,791 |   |
| 2008                          | ...............................................................  |      | 6,553 |   |
| 2009                          | ...............................................................  |       | 4,937 |   |
| 2010                          | ...............................................................  |       | 4,861 |   |
| 2011                          | ...............................................................  |       | 51 |   |
| Thereafter                    | ...............................................................  |       | --- |   |
|                               |
|     Total | ...............................................................  |  $ | 22,193 |   |
|                               |
| **11.** | **   ** | **RELATED PARTY TRANSACTIONS** |
|---------|------------------------|--------------------------------|

During the year ended July 3, 2005, a shareholder, holding more than 10% of the Company’s outstanding shares, sold shares of LaBarge Common Stock in transactions deemed to be short-swing sales. Under Section 16(b) of theSecurities Exchange Act of 1934, the shareholder was required to disgorge to the Company the profits realized from the stock sale in the amount of approximately $58,000. The Company accounted for the cash receipt as a contribution from a shareholder and reflected theproceeds as an increase to additional paid-in capital in its financial statements. Proceeds from this sale did not affect the Company’s consolidated statement of income.
| **12.** | **   ** | **OPERATING LEASES** |
|---------|------------------------|----------------------|

The Company operates certain of its manufacturing facilities in leased premises and with leased equipment under noncancellable operating lease agreements having an initial term of more than one year and expiring at variousdates through 2020.  The real property leases require the Company to pay maintenance, insurance and real estate taxes.

Rental expense under operating leases is as follows:*(dollars in thousands)*
|                                                                  | **Fiscal Year Ended** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |
|                                                                                                                                                                                          |                  |   | **July 2,** |   | July 3, |  |  | June 27, |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |   | **2006** |   | 2005 |   |   | 2004 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
| Initial term of more than one year                                                                                                                                                                                                                                                                                                                                                               |                       | **$** | **2,121** |  | $ | 2,098 |  | $ | 1,754 |    |
| Short-term rentals                                                                                                                                                                                                                                                                                                                                                                               |                       |  | **143** |   |   | 89 |  |   | 288 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                               |                  | **$** | **2,264** |  | $ | 2,187 |  | $ | 2,042 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |

At July 3, 2005, the future minimum lease payments under operating leases with initial noncancellable terms in excess of one year are as follows:

*(dollars in thousands)*
| **Fiscal Year** |
|-----------------|
|                 |
| 2007            | ................................................................  | $ | 2,055 |   |
| 2008            | ................................................................  |    | 1,592 |   |
| 2009            | ................................................................  |  | 1,289 |   |
| 2010            | ................................................................  |  | 1,245 |   |
| 2011            | ................................................................  |  | 821 |   |
| Thereafter      | ................................................................  |  | 2,787 |   |
|                 |

The $2.8 million thereafter relates to obligations under long-term facility leases in Huntsville, Arkansas, and Houston, Texas.
| **13.** | **   ** | **EMPLOYEE BENEFIT PLANS** |
|---------|------------------------|----------------------------|

The Company has a qualified contributory savings plan under Section 401(k) of the Internal Revenue Code for employees meeting certain service requirements.  The plan allows eligible employees to contribute up to 60% of their compensation,with the Company matching 50% of the first $25 per month and 25% of the excess on the first 8% of this contribution.  During 2006, 2005 and 2004, Company matching contributions were $449,000, $428,000 and $365,000, respectively.

At the discretion of the Board of Directors, the Company may also make contributions dependent on profits each year for the benefit of all eligible employees under the plan.  There were no such contributions for 2006,2005 and 2004.

The Company has a deferred compensation plan for selected employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the contributory savings plan.  This plan, which is not required to befunded, allows eligible employees to defer portions of their current compensation and the Company guarantees an interest rate of between prime and prime plus 2%.  To support the deferred compensation plan, the Company may elect to purchase Company-owned lifeinsurance.  The increase in the cash value of the life insurance policies exceeded the premiums paid by $79,000, $73,000 and $78,000 in fiscal years 2006, 2005 and 2004, respectively.  The cash surrender value of the Company-owned life insurance related todeferred compensation is included in other assets along with other policies owned by the Company, and was $1.4 million at July 2, 2006, compared with $1.3 million at July 3, 2005.  The liability for the deferred compensation and interest thereon is inaccrued employee compensation and was $3.7 million at July 2, 2006 versus $3.2 million at July 3, 2005.

The Company has an employee stock purchase plan that allows any eligible employee to purchase common stock at the end of each quarter at 15% below the market price as of the first or last day of the quarter, whichever islower.    For the year ended July 2, 2006, 21,690 shares were purchased in the amount of $325,000, for which the Company recognized expense of approximately $55,000. For the year ended July 3, 2005, 27,469 shares were purchased in the amount of $278,000,for which the Company recognized expense of approximately $113,000. For the year ended June 27, 2004, 57,337 shares were purchased in the amount of $261,000, of which the Company recognized expense of approximately $75,000.
| **14.** | **   ** | **OTHER INCOME, NET** |
|---------|------------------------|-----------------------|

The components of other income, net, are as follows:*(dollars in thousands)*
|                                                                  | **Fiscal Year Ended** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  | **July 2,** |    | July 3, |  |    | June 27, |  |
|                                                                                                                                                                                                                                                                                                                                                                         |                  |   | **2006** |  | 2005 |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
| Interest income                                                                                                                                                                                                                                                                                                                                                                                  |                       | **$** | **7** |  | $ | 10 |  | $ | 37 |  |
| Property rental income                                                                                                                                                                                                                                                                                                                                                                           |                       |  | **835** |  |    | 1,039 |  |  | 1,025 |  |
| Property rental expense                                                                                                                                                                                                                                                                                                                                                                          |                       |  | **(603** | **)** |  | (640 | ) |  | (566 | ) |
| Other, net                                                                                                                                                                                                                                                                                                                                                                                       |                       | **  ** | **(145** | **)** |  | 68 |  |    | 181 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
|                                                                  |                       | **$** | **94** |  | $ | 477 |  | $ | 677 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                       |  |  |  |  |  |  |  |  |  |

The Company owns its headquarters building in St. Louis, Missouri, and leases a significant portion of the facilities to third parties.  Rental income represents rent receipts from these third parties.

For the year ended July 2, 2006, Other, net includes a $181,000 other-than-temporary impairment of the Company’s investment in Norwood Abbey (see Note 9), offset by a realized $30,000 gain on the sale of 210,000 sharesof Norwood Abbey.

For the year ended July 3, 2005, Other, net includes a $415,000 other-than-temporary impairment of the Company’s investment tin Norwood Abbey (see Note 9), offset by a $385,000 gain on a lease termination fee and $56,000receipt of a death benefit under a life insurance benefit program. In 2004, Other, net includes income of $225,000 relating to the sale of a portion of the Company’s investment in Norwood Abbey.
| **15.** | **   ** | **INCOME TAXES** |
|---------|------------------------|------------------|

Total income tax expense (benefit) was allocated as follows:*(dollars in thousands)*

|                                                          | **July 2,**     |    |                                                                                                                                                                         | July 3,    |             |   | June 27, |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|--------|----------|--------|
|                                                          | **2006**        |              |                                                                                                                                                                              | 2005       |        |        | 2004     |        |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
| **Current:**                                                                                                                                                                                                                                                                                                                                     |            | ** **   | **                            ** |       |        |   |     |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                             | U.S. Federal    |         | **$**                                                                                                                                                                        | **5,716**  | ** **  |   | $        | 4,889  |   |   | $ | 3,618 |   |
|                                                                                                                                                                                                                                                                                                                                             | State and Local |         | ** **                                                                                                                                                                   | **1,059**  | ** **  |   |     | 902    |   |   |   | 817 |   |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                             | Total           |         | **$**                                                                                                                                                                        | **6,775**  | ** **  |   | $        | 5,791  |   |   | $ | 4,435 |   |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
| **Deferred:**                                                                                                                                                                                                                                                                                                                                    |            | ** **   | ** **                                                                                                                                                                   | ** ** |        |   |     |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                             | U.S. Federal    |         | **$**                                                                                                                                                                        | **(469**   | **) ** |   | $        | 185    |   |   | $ | 79 |   |
|                                                                                                                                                                                                                                                                                                                                             | State and Local |         | ** **                                                                                                                                                                   | **(50**    | **) ** |   |     | 19     |   |   |   | 18 |   |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                             | Total           |         | **$**                                                                                                                                                                        | **(519**   | **) ** |   | $        | 204    |   |   | $ | 97 |   |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                             |
| **Income tax expense from continuing operations:**                                                                                                                                                                                                                                                                                               |            | ** **   | ** **                                                                                                                                                                   | ** ** |        |   |     |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                             | U.S. Federal    |         | **$**                                                                                                                                                                        | **5,247**  |             |   | $        | 5,074  |   |   | $ | 3,697 |   |
|                                                                                                                                                                                                                                                                                                                                             | State and Local |         | ** **                                                                                                                                                                   | **1,009**  | ** **  |   |     | 921    |   |   |   | 835 |   |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                             | Total           |         | **$**                                                                                                                                                                        | **6,256**  | ** **  |   | $        | 5,995  |   |   | $ | 4,532 |   |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                             |
| **Discontinued operations:**                                                                                                                                                                                                                                                                                                                     |            | ** **   |                                                                                                                                                                              | ** ** |        |   |          |   |   |   |  |   |
|                                                                                                                                                                                                                                                                                                                                             | U.S. Federal    |         | **$**                                                                                                                                                                        | **---**    | ** **  |   | $        | ---    |  |   | $ | (66 | )  |
|                                                                                                                                                                                                                                                                                                                                             | State and Local |         | ** **                                                                                                                                                                   | **---**    | ** **  |   |     | ---    |  |   |   | (4 | )  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  | Total           |         | **$**                                                                                                                                                                        | **---**    | ** **  |   | $        | ---    |  |   | $ | (70 | )  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |
|                                                                                                                                                                                                                                                                                                                                                  |                 |              |                                                                                                                                                                              |            |             |        |          |        |  |

Income tax expense (benefit) from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate of 35% as a result of the following:

*(dollars in thousands)*

|                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **July 2,** |            |            | July 3,    |   |        | June 27, |        |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|------------|------------|------------|--------|--------|----------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **2006**    |       |       | 2005       |        |   | 2004     |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |            |            |            |        |        |          |        |        |  |  |
| Computed “expected” tax expense                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **$**       | **5,587**  | ** ** |       | $      | 5,903  |     |   | $      | 3,908 |   |
| Increase (reduction) in income taxes resulting from:                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                             | Federal tax credit – current year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |            | **(55**    | **)**      |   |        | (81      | )      |   |  | (72 | )  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Tax exposure adjustment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |             |            | **(99**    | **)**      |        |        | (245     | )      |        |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                             | State and local tax, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | ** ** | **622**    | ** ** |   |   | 599      |   |   |   | 551 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |             | ** ** | **201**    |            |        |   | (181     | )      |        |   | 145 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |            |            |            |        |        |          |        |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                             | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        | **$**      | **6,256**  | ** ** |   | $      | 5,995    |   |   | $ | 4,532 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |            |            |            |        |        |          |        |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |            |            |            |        |        |          |        |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |            |            |            |        |        |          |        |        |  |  |  |

The Company regularly reviews its potential tax liabilities for tax years subject to audit. Based on reviews during 2006 and 2005, the Company determined that adjustments to tax expense were necessary. The net reduction ofapproximately $99,000 in fiscal year 2006 and $245,000 in fiscal year 2005 were tax exposure adjustments.

In October 2004, the American Jobs Creation Act of 2004 was signed into law. The new law phases out the Extraterritorial Income Exclusion (“EIE”) benefit, phases in a new deduction on U.S. manufacturing income, andallows the repatriation of undistributed foreign earnings at a reduced rate in 2005 subject to certain limitations. Due to the fact that the Company’s fiscal and tax year began June 28, 2004, the new law did not impact the Company’s fiscal year 2005provision materially. The only impact on the Company’s provision was a slight reduction in the EIE benefit earned in the last six months of the year. The Company has no foreign earnings to repatriate and the new manufacturing deductions did not become effectivefor the Company until fiscal year 2006.

In fiscal year 2006, the new law resulted in a reduction of $185,000 in the tax provision.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

*(dollars in thousands)*
|                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                          | **July 2,**            |                                                                         | July 3,            |              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|------------------------------------------------------------------------------------------------------------------------------------------|--------------------|--------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **2006**               |                                                                                                                                     | 2005               |         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
| **Deferred tax assets:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                            |
| Inventories due to additional costs inventoried                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | for tax purposes pursuant to the Tax Reform Act                                                                                                                                                                                                                                                                                                                                                                                                              |                        | **                      ** |     |              |                      |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | of 1986 and inventory reserves                                                                                                                                                                                                                                                                                                                                                                                                                               | **$**                  | **657**                                                                                                                                  |                    | $            | 653 |  |
| Deferred compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **2,005**              |                                                                                                                                          |                    | 1,300        |  |
| Loss reserves on long-term contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **298**                |                                                                                                                                          |                    | 248          |  |
| Accrued vacation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **440**                |                                                                                                                                          |                    | 361          |  |
| Other than temporary impairment of asset - held for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **197**                |                                                                                                                                          |                    | 160          |  |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **67**                 |                                                                                                                                          |                    | 177          |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **Total gross deferred tax assets**                                                                                                                                                                                                                                                                                                                                                                                                                          | **$**                  | **3,664**                                                                                                                                |                    | $            | 2,899 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **   ** |                                                                                                                                          |                    |              |  |
| **Deferred tax liabilities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** **             |                                                                                                                           |          |    |       |
| Goodwill and intangibles, due to Pinnacle acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | **$**                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **(1,121**             | **)**                                                                                                                                    | $                  | (652         | ) |
| Property, plant and equipment, principally due to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | differences in depreciation methods                                                                                                                                                                                                                                                                                                                                                                                                                          |                        | **(1,278**                                                                                                                               | **)**              |              | (1,524 | ) |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **(105**               | **)**                                                                                                                                    |                    | (81          | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Total gross deferred tax liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                     | **$**                  | **(2,504**                                                                                                                               | **)**              | $            | (2,257 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | **Net deferred tax assets**                                                                                                                                                                                                                                                                                                                                                                                                                                  | **$**                  | **1,160**                                                                                                                                |                    | $            | 642 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                        |                                                                                                                                          |                    |              |  |

A valuation allowance is provided, if necessary, to reduce the deferred tax assets to a level, which, more likely than not, will be realized.  The net deferred tax assets reflect management’s belief that it is morelikely than not that future operating results will generate sufficient taxable income to realize the deferred tax assets.

Total cash payments for federal and state income taxes were $8.0 million for fiscal 2006, $5.9 million for fiscal 2005 and $3.4 million for fiscal 2004.
| **16.** | **   ** | **EARNINGS PER SHARE** |
|---------|------------------------|------------------------|

Basic and diluted earnings (loss) per share are computed as follows:*(amounts in thousands, except earnings per-share amounts)*
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **July 2,**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | July 3,  |           |                                 | June 27,     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|----------|-----------|------------------------------------------------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                 | **2006** |           | 2005                                           |         |        | 2004 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                 | **$**    | **9,708** |                                                | $            | 10,870 |  | $ | 6,971 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                 |          | **---**   |                                                |    | ---    |  |  | (114 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Gain (loss) on disposal, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                 |          | **---**   |                                                |              | ---    |  |  | 12 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Net earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                      | **$**    | **9,708** |                                                | $            | 10,870 |   | $ | 6,869 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                   |
| **Basic net earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                      | **$**    | **0.64**  |                                                | $            | 0.72   |  | $ | 0.47 |  |
| **  **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                      |          | **---**   |                                                |              | ---    |  |   | (0.01 | ) |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Gain (loss) on disposal, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                      |          | **---**   |                                                |              | ---    |  |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **Basic net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                      | **$**    | **0.64**  |                                                | $            | 0.72   |  | $ | 0.46 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Diluted earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                 | **$**    | **0.60**  | **       ** | $            | 0.68   |         | $ | 0.45 |  |
| **  **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                 |          | **---**   |                                                |    | ---    |  |   | (0.01 | ) |
| **  **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Gain (loss) on disposal, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                 |          | **---**   |                                                |              | ---    |  |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **   **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Diluted net earnings per share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                      | **$**    | **0.60**  |                                                | $            | 0.68   |  | $ | 0.44 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                      |          |           |                                                |              |        |  |  |  |

Basic earnings per share are calculated using the weighted average number of shares outstanding during the period.  Diluted earnings per share is calculated using the weighted average number of shares outstanding duringthe period plus shares issuable upon the assumed exercise of dilutive share options and performance units by using the treasury stock method.*(in thousands)*

|                                                                           | **July 2,** |          |            | July 3,    |   |   | June 27, |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|----------|------------|------------|--------|--------|----------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             | **2006** |       |            | 2005   |        |          | 2004   |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |          |            |            |        |        |          |        |        |  |  |  |
| Average shares outstanding -- basic                                                                                                                                                                                                                                                                                                                                                                                                                    |        |          | **15,156** | ** ** |   |        | 15,013   |   |   |    | 14,981 |   |
| Dilutive options and performance units                                                                                                                                                                                                                                                                                                                                                                                                                 |             |          | **946**    |            |   |   | 870      |        |        |   | 571 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |
| Adjusted average shares                                                                                                                                                                                                                                                                                                                                                                                                                                |             |
|  outstanding -- diluted                                                                                                                                                                                                                                                                                                                                                                                                                           |             |          | **16,102** |            |        |        | 15,883   |        |   |   | 15,552 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |          |            |            |        |        |          |        |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |          |            |            |        |        |          |        |        |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |             |          |            |            |        |        |          |        |        |  |  |  |

| **17.** | **   ** | **STOCK PROGRAMS** |
|---------|------------------------|--------------------|

The Company has established the 1993 Incentive Stock Option Plan, the 1995 Incentive Stock Option Plan, and the 1999 Non-Qualified Stock Option Plan (collectively, the “Plans”). The Plans provide for the issuanceof up to 2,200,000 shares to be granted in the form of stock-based awards to key employees of the Company. In addition, pursuant to the 2004 Long Term Incentive Plan (“LTIP”), the Company provides for the issuance of up to 850,000 shares to be granted inthe form of stock-based awards to certain key employees and nonemployee directors. The Company may satisfy the awards upon exercise with either new or treasury shares. The Company’s stock compensation awards outstanding at July 2, 2006 include stock options,restricted stock and performance units.

Also, the Company has an Employee Stock Purchase Plan that allows any eligible employee to purchase common stock at the end of each quarter at 15% below the market price as of the first or last day of the quarter, whichever islower. The Company has always recognized as expense the difference between the price the employee pays and the market price of the stock on the last day of the quarter.

For the year ended July 2, 2006, stock-based compensation attributable to the adoption of SFAS No. 123R was $629,000 ($391,000 after tax), equivalent to earnings per basic and diluted share of $0.02.

As of July 2, 2006, the total unrecognized compensation expense related to nonvested awards, including stock options, restricted shares and performance units, was $1.2 million pretax and the period over which itis expected to be recognized is approximately 1.6 years.

A summary of the Company’s Plans as of July 2, 2006 is presented below:

| **                                                 ** |                                                                                                                              | **Number of Shares**         | **  ** | ** ** | **Weighted Average Exercise Price** | **  **                                                               | **Number of Shares Exercisable** | ** ** | **Weighted Average Exercise Price**              | **  **                   | **Weighted Average Fair Value Granted Option** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|------------------------------|------------------|------------|-------------------------------------|--------------------------------------------------------------------------------|----------------------------------|------------|--------------------------------------------------|------------------------------------|------------------------------------------------|
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
| Outstanding at June 29, 2003                                                                                                                                                                                                                                                                               |                                                                                                                         | 1,562,863                    |                  | $          | 2.94                                |                                                                                |                                  | 791,840    |                                   | $                                  | 3.05                                           |   |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
|                                                                                                                                                                                                        |
| Canceled                                                                                                                                                                                                                                                                                                   |                                                                                                                         | (72,477                      | )                |            | 3.11                                |                                                                                |                                  | ---        |          | ---                                |                  |  |  |  |
| Granted                                                                                                                                                                                                                                                                                                    |                                                                                                                              | 322,000                      |                  |            | 3.56                                |               |                                  | ---        |                                                  | ---                                |                                                | $ | 1.80 |  |
| Exercised                                                                                                                                                                                                                                                                                                  |                                                                                                                              | (168,555                     | )                |            | 2.80                                |                                                                                |                             | ---        |                                                  | ---                                |                                                |  |  |  |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
| Outstanding at June 27, 2004                                                                                                                                                                                                                                                                               |                                                                                                                              | 1,643,831                    |                  |            | 3.06                                |                                                                                |                                  | 913,196    |                                                  | 3.00                               |                                                |  |  |  |
|                                                                                                                                                                                                                                                                                                       |
| Canceled                                                                                                                                                                                                                                                                                                   |                                                                                                                         | (20,957                      | )                |            | 2.50                                |                                                                                |                                  | ---        |                                                  | ---                                |                                                |  |  |  |
| Granted                                                                                                                                                                                                                                                                                                    |                                                                                                                              | 316,902                      |                  |            | 8.54                                |                                                                                |                                  | ---        |                                                  | ---                                |                                                | $ | 5.33 |    |
| Exercised                                                                                                                                                                                                                                                                                                  |                                                                                                                              | (59,200                      | )                |            | 2.51                                |                                                                                |                                  | ---        |                                                  | ---                                |                                                |  |  |  |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
| Outstanding at July 3, 2005                                                                                                                                                                                                                                                                                | 1,880,576                                                                                                                    |                              |                  | 3.96       |                                     |                                                                                | 1,100,226                        |            | 2.92                                             |                                    |                                                |  |
| **               **                                                                                                                                                                                                             |
| **Canceled**                                                                                                                                                                                                                                                                                               |                                                                                                                              | **(3,750**                   | **)**            |            | **8.54**                            |                                                                                |                                  | **---**    |                                                  | **---**                            |                                                | **   ** |  | **  ** |
| **Granted**                                                                                                                                                                                                                                                                                                |                                                                                                                              | **---**                      |                  |            | **---**                             |                                                                                |                                  | **---**    |                                                  | **---**                            | **   **                         | **$** | **---** |  |
| **Exercised**                                                                                                                                                                                                                                                                                              |                                                                                                                              | **(105,675**                 | **)**            |            | **3.43**                            |                                                                                |                                  | **---**    |                                                  | **---**                            |                                                |  |  |  |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
| **Outstanding at July 2, 2006**                                                                                                                                                                                                                                                                            | **1,771,151**                                                                                                                | **    ** | **$**            | **3.94**   |                                     | **  **                                                               | **1,573,119**                    | **$**      | **3.52**                                         | **     ** |                                                |  |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |  |
|                                                                                                                                                                                                                                                                                                            |                                                                                                                              |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |
| ** **                                                                                                                                                                                                                                                                                                 | **                    ** |                              |                  |            |                                     |                                                                                |                                  |            |                                                  |                                    |                                                |  |

The following table summarizes information about stock options outstanding:

| **                      ** |                  | **Outstanding Options**                |                  | **Exercisable Options**                         |
|------------------------------------------------------------------------------------------------------------------------------------------|------------------|----------------------------------------|------------------|-------------------------------------------------|
|                                                                                                                                          |                  |                                        |                  |                                                 |
| **Range of Exercise Prices**                                                                                                             | **  ** | **Number Outstanding at July 2, 2006** | **  ** | **Weighted Average Remaining Contractual Life** | ** ** | ** ** | **Weighted Average Exercise Price** | ** ** | **Aggregate Intrinsic Value****(1)****(In Millions)** | **  ** | **Number Exercisable at July 2, 2006** | ** ** | **Weighted Average Exercise Price** | ** ** | **Aggregate Intrinsic Value****(1)****(In Millions)** | ** ** |
|                                                                                                                                          |                  |                                        |                  |                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| $2.50 – $3.56                                                                                                                      |             | 1,401,086                              |             | 4.7                                             |   | $ | 2.82 |       | $ | --- |         | 1,357,755 |   |  | $ | 2.82 |      | $ | --- |  |
| $3.57 – $5.96                                                                                                                      |             | 27,513                                 |             | 1.1                                             |   |  | 5.86 |   | --- |  | 27,513 |   |  |  | 5.86 |  | --- |  |
| $5.97 – $8.54                                                                                                                      |             | 342,552                                |             | 7.4                                             |   |  | 8.36 |   | --- |  | 187,851 |   |  |  | 8.22 |  | --- |  |
| $2.50 – $8.54                                                                                                                      |             | 1,771,151                              |             | 5.1                                             |   | $ | 3.94 | $ | 16.5 |  | 1,573,119 |   |  | $ | 3.52 | $ | 15.3 |  |
|                                                                                                                                          |                  |                                        |                  |                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                          |                  |                                        |                  |                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                          |                  |                                        |                  |                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                          |                  |                                        |                  |                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option.

The total intrinsic value of stock options exercised during the fiscal year ended July 2, 2006 and July 3, 2005 was $1.2 million and $0.4 million, respectively. The exercise period for all stock options generally may notexceed 10 years from the date of grant. Stock option grants to individuals generally become exercisable over a service period of one to five years.

There were no stock options granted in the fiscal year ended July 2, 2006.

*Performance Units*

The Company made awards under the LTIP in January 2005. The Company’s LTIP provides for the issuance of performance units, which will be settled in stock subject to the achievement of the Company’s financial goals.Settlement will be made pursuant to a range of opportunities relative to net earnings. No settlement will occur for results below the minimum threshold and additional shares shall be issued if the performance exceeds the targeted goals. The compensation cost ofperformance units is subject to adjustment based upon the attainability of the target goals.

Upon achievement of the performance goals, restricted shares are awarded in the employee’s name but are still subject to a two-year vesting condition. If employment is terminated (other than due to death or disability)prior to the vesting period, the shares are forfeited. Compensation expense is recognized over the performance period plus vesting period. The awards are treated as a liability award during the performance period and as an equity award once the performance targetsare settled.

During the fiscal year ended July 2, 2006, the Company issued 57,751 shares of restricted stock, subject to the two-year vesting condition, associated with the fiscal 2005 award. In addition, the Company recorded compensationexpense for the awards granted for fiscal 2006.

Compensation expense of $757,000 ($470,000 after tax) related to the LTIP was recorded in the fiscal year ended July 2, 2006, compared with $203,000 ($124,000 after tax) in the fiscal year ended July 3, 2005.
| **18.** | **   ** | **LITIGATION AND CONTINGENICIES** |
|---------|------------------------|-----------------------------------|

In March 2004, the Company received notice from the Library of Congress (“LOC”) that the LOC was seeking financial restitution in the amount of $1.8 million stemming from the Company’s production of audiocassette machines during the period 1992through 1996. The LOC claimed the machines were defective.  The Company disputed the LOC’s position.

During the fiscal year ended July 2, 2006, in order to avoid future legal expenses, the Company paid $50,000 to settle all claims related to this issue, without an admission of liability.

In March 2005, the Company entered into a contract with Northrop Grumman Corporation to supply equipment used on mail sorting machines. The equipment to be manufactured and the services to be performed have undergone hundredsof design and component changes. The Company has negotiated  a settlement of the claims arising from these changes.  During the year ended July 2, 2006, the Company recovered its costs under the claim.
| ****
**19.** | **   ** | **SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)** |
|--------------|------------------------|---------------------------------------------------|

Summarized quarterly financial data is set forth below:*(dollars in thousands, except per-share amounts)*
|                                                          | **October 2,**       |       | **January 1,**   |       | **April 2,** |       | **July 2,**            |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|------------|------------------|------------|--------------|------------|------------------------|------------|
| **FY2006**                                                                                                                                                                                                                                                                                                                                       |                      | **2005**   |                  | **2006**   |              | **2006**   |                        | **2006**   |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| Net sales                                                                                                                                                                                                                                                                                                                                        | **$**                | **39,639** | ** **       | ** ** | **$**        | **48,147** |                   | ** ** | **$** | **47,273** | ** ** | ** ** | **$** | **55,030** | ** ** |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| Cost of sales                                                                                                                                                                                                                                                                                                                                    | **30,141**           |       | **  ** | ** ** | **37,680**   |       | **   ** | ** ** | **37,483** |   | **   ** | ** ** | **43,795** | ** ** |   |
| Selling and administrative expense                                                                                                                                                                                                                                                                                                               |            |       | **5,625**        |       | ** **   | ** ** | **5,835**              |       | ** ** | ** ** | **5,509** |   | ** ** | ** ** | **6,068** | ** ** |   |
| Interest expense                                                                                                                                                                                                                                                                                                                                 |                 |       | **404**          |       | ** **   | ** ** | **449**                |       | ** ** | ** ** | **554** |   | ** ** | ** ** | **676** | ** ** |   |
| Other (income) expense, net                                                                                                                                                                                                                                                                                                                      |                      |            | **(33**          | **)**      |              |            | **(114**               | **)**      |  |  | **17** |  |  |  | **35** |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| Net earnings before income taxes                                                                                                                                                                                                                                                                                                                 |                 |            | **3,502**        | ** ** | ** **   |            | **4,297**              | ** ** | ** ** |  | **3,710** | ** ** | ** ** |  | **4,456** | ** ** |   |
| Income tax expense                                                                                                                                                                                                                                                                                                                               |                      |            | **1,471**        |            |              |            | **1,634**              |            |  |  | **1,405** |  |  |  | **1,746** |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                  | Net earnings         |            | **$**            | **2,031**  |              |            | **$**                  | **2,663**  |  |  | **$** | **2,305** |  |  | **$** | **2,710** |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| **Basic net earnings per share:**                                                                                                                                                                                                                                                                                                                | ** **           |       |
|                                                                                                                                                                                                                                                                                                                                                  | Basic net earnings   |            | **$**            | **0.13**   |              |            | **$**                  | **0.18**   |  |  | **$** | **0.15** |  |  | **$** | **0.18** |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| **Average shares outstanding**                                                                                                                                                                                                                                                                                                                   |                 | **15,084** | ** **       | ** ** | ** **   | **15,149** | ** **             | ** ** | ** ** | **15,187** | ** ** | ** ** | ** ** | **15,203** |   |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| **Diluted earnings per share:**                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |   |
|                                                                                                                                                                                                                                                                                                                                   | Diluted net earnings |            | **$**            | **0.13**   |              |            | **$**                  | **0.17**   |  |  | **$** | **0.14** |  | ** ** | **$** | **0.17** |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
| **Average diluted shares outstanding**                                                                                                                                                                                                                                                                                                      |                      | **16,069** | ** **       | ** ** | ** **   | **16,056** |                        | ** ** | ** ** | **16,125** |  | ** ** | ** ** | **16,163** |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |   |
|                                                                                                                                                                                                                                                                                                                                                  |                      |            |                  |            |              |            |                        |            |  |  |  |  |  |  |  |  |

**
| ****
**19.** | **   ** | **SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)** |
|--------------|------------------------|---------------------------------------------------|

*(continued)*
|                                                                  | October 3,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |        | January 2, |        | April 3, |        | July 3, |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|----------|--------|---------|
| FY2005                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 2004   |            | 2005   |          | 2005   |         | 2005 |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| Net sales                                                                                                                                                                                                                                                                                                                                                                                        | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 43,634 |       |   | $        | 48,718 |    |   | $ | 44,837 |   |   | $ | 45,105 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| Cost of sales                                                                                                                                                                                                                                                                                                                                                                                    | 33,594                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |       |   | 38,176   |   |    |   | 34,706 |   |   |   | 34,704 |   |
| Selling and administrative expense                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 5,858      |   |     |   | 5,812   |   |   |   | 5,972 |   |   |   | 5,337 |   |
| Interest expense                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 514        |   |     |   | 405     |   |   |   | 426 |   |   |   | 402 |   |
| Other (income) expense, net                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        | (89        | )      |          |        | (113    | ) |  |  | (228 | ) |  |  | (47 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| Net earnings before income taxes                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        | 3,757      |   |     |        | 4,438   |   |   |  | 3,961 |   |   |  | 4,709 |   |
| Income tax expense                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        | 1,454      |        |          |        | 1,717   |  |  |  | 954 |  |  |  | 1,870 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  | Net earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | $          | 2,303  |          |        | $       | 2,721 |  |  | $ | 3,007 |  |  | $ | 2,839 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| **Basic net earnings per share:**                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                  | Basic net earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        | $          | 0.15   |          |        | $       | 0.18 |  |  | $ | 0.20 |  |  | $ | 0.19 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| **Average shares outstanding**                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 14,975 |       |   |     | 15,006 |    |   |   | 15,026 |   |   | ** ** | 15,048 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| **Diluted earnings per share:**                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                   | Diluted net earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        | $          | 0.15   |          |        | $       | 0.17 |  |  | $ | 0.19 |  |   | $ | 0.18 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
| **Average diluted shares outstanding**                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 15,664 |       |   |     | 15,816 |         |   |   | 15,938 |  |   | ** ** | 16,061 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            |        |          |        |         |  |  |  |  |  |  |  |  |  |

**LaBarge, Inc.SELECTED FINANCIAL DATA*****(amounts in thousands except per-share amounts)***
|                                                                                                           | **Year Ended**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                              | **July 2,**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |    |   |         | July 3, |        |  |       | June 27, |      |  |     | June 29, |   |   |   | June 30, |  |
|                                                                                       | **2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   | 2005 |   |   |    | 2004 |   |   |     | 2003 |   |   |   | 2002 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net sales                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | **$** | **190,089** |   |   | $ | 182,294 |   |   | $ | 131,510 |  |  | $ | 102,901 |  |  | $ | 117,190 |  |
| Pretax earnings from                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **                 ** |        |  |  |                  |        |  |  |                  |        |  |  |                  |        |  |  |                |  |
|  continuing operations                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **15,964** |  |  |  | 16,865 |  |  |  | 11,503 |  |  |  | 5,076 |  |  |  | 6,687 |  |
| Net earnings from                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  continuing operations                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **9,708** |  |  |  | 10,870 |  |  |  | 6,971 |  |  |  | 3,319 |  |  |  | 4,361 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Discontinued operations:**                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                |
|  Loss from operations,                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   net of taxes                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **---** |  |  |  | --- |  |  |  | (114 | ) |  |  | (859 | ) |  |  | (431 | ) |
|  Gain (loss) on disposal,                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   net of taxes                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  |  | --- |  |  |  | 12 |  |  |  | (212 | ) |  |  | --- |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Net earnings**                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | **$** | **9,708** |  |  | $ | 10,870 |  |  | $ | 6,869 |  |  | $ | 2,248 |  |  | $ | 3,930 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Basic earning (loss) per share:**                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                               |
|  Net earnings from                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                   |  |  |  |                 |  |  |  |                   |  |  |  |                      |  |  |  |                   |  |
|   continuing operations                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **0.64** |  |  | $ | 0.72 |  |  | $ | 0.47 |  |  | $ | 0.22 |  |  | $ | 0.29 |  |
|  Net loss from                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   discontinued operations                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  |  | --- |  |  |  | (0.01 | ) |  |  | (0.07 | ) |  |  | (0.03 | ) |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Basic net earnings**                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **0.64** |  |  | $ | 0.72 |  |  | $ | 0.46 |  |  | $ | 0.15 |  |  | $ | 0.26 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Diluted earnings (loss) per share:**                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Net earnings from                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|  continuing operations                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **0.60** |  |  | $ | 0.68 |  |  | $ | 0.45 |  |  | $ | 0.22 |  |  | $ | 0.28 |  |
| Net earnings (loss) from                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   discontinued operations                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **---** |  |  |  | --- |  |  |  | (0.01 | ) |  |  | (0.07 | ) |  |  | (0.02 | ) |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **Diluted net earnings**                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **$** | **0.60** |  |  | $ | 0.68 |  |  | $ | 0.44 |  |  | $ | 0.15 |  |  | $ | 0.26 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total assets                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$** | **140,350** |  |  | $ | 119,937 |  |  | $ | 117,958 |  |  | $ | 67,162 |  |  | $ | 68,206 |  |
| Long-term debt                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | **41,668** |  |  |  | 21,605 |  |  |  | 26,270 |  |  |  | 6,669 |  |  |  | 7,047 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                     |

No cash dividends have been paid during the aforementioned periods.

The Company’s interest in the Network Technologies Group was reported as a discontinued operation (see Note 2).  Accordingly, the operating results of Network Technologies Group for fiscal years 2002,2003 and 2004 are reported as discontinued operations.

The Company acquired substantially all of the assets of Pinnacle Electronics LLC in fiscal year 2004.  See Note 2 to the financial statements.

****

**Stock Price and Cash Dividends: **LaBarge, Inc.’s Common Stock is listed on the American Stock Exchange, under the trading symbol of “LB.”  As of September 5, 2006, therewere 2,126 holders of record of LaBarge, Inc.’s Common Stock.  The following table indicates the quarterly high and low sales prices for the stock for the fiscal years 2006 and 2005, as reported by the American Stock Exchange.
| **2005-2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **High**                                                                                                                                                                       | **Low**                                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **July – September**                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **$22.00**                                                                                                                                                                     |                                                                                                                                                                                | **$12.02** |  |
| **October – December**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | **15.15**                                                                                                                                                                      |                                                                                                                                                                                | **12.80** |  |
| **January – March**                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **17.76**                                                                                                                                                                      | **         **                                                                                                                     | **13.90** | **    ** |
| **April – June**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **16.43**                                                                                                                                                                      |                                                                                                                                                                                | **10.68** |  |
|                                                                                   |                               |                               |
| 2004-2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | High                                                                                                                                                                           | Low                                                                                                                                                                            |
| July – September                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $  9.00                                                                                                                                                              |                                                                                                                                                                                | $  6.68 |      |
| October – December                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 13.50                                                                                                                                                                          |                                                                                                                                                                                | 7.85 |  |
| January – March                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 13.75                                                                                                                                                                          |                                                                                                                                                                                | 9.70 |  |
| April – June                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 18.40                                                                                                                                                                          |                                                                                                                                                                                | 12.01 |  |

The Company has paid no cash dividends on its common stock. The Company currently anticipates that it will retain any future earnings for the development, operation and expansion of its business and for possibleacquisitions.

----

**LaBarge, Inc.****MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Forward-looking Statements***       Certain sections of this report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that relate to futureevents or our future financial performance.  We have attempted to identify these statements by terminology including “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,”“seek,” “goal,” “may,” “will,” “should,” “can,” “continue,” or the negative of these terms or other comparable terminology.  These statements include statements about our marketopportunity, our growth strategy, competition, expected activities, and the adequacy of our available cash resources.  These statements may be found in the sections of this report entitled “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” “Business” and “Legal Proceedings.”  Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, readers are cautioned that matters subject toforward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions asdiscussed in Item 1A, “Risk Factors.”       Given these uncertainties, undue reliance should not be placed on such forward-looking statements.  Unless otherwise required by law, the Company disclaims an obligation to update any such factors or to publicly announcethe results of any revisions to any forward-looking statements contained herein to reflect future events or developments.*

**Overview**

The Company’s electronics manufacturing services (“EMS”) business has been its principal business since 1985.  The Company designs, engineers and produces sophisticated electronic systemsand devices, and complex interconnect systems on a contract basis for its customers.  The Company markets its services to companies in technology-driven industries desiring an engineering and manufacturing partner capable of developing and providinghigh-reliability electronic equipment, including products capable of performing in harsh environmental conditions, such as high and low temperature, and severe shock and vibration.  Customers are served in a variety of markets with significant revenues fromcustomers in the defense, government systems, aerospace, natural resources, industrial, and other commercial markets.  Engineering and manufacturing facilities are located in Arkansas, Missouri, Oklahoma, Texas and Pennsylvania.  During fiscal years 2003and 2004, the Company exited its ScadaNET NetworkTM businesses.

On February 17, 2004, the Company acquired substantially all of the assets of Pinnacle Electronics LLC.  The acquired assets supplement the Company’s electronics manufacturing services business with aleased location in metropolitan Pittsburgh, Pennsylvania, adding substantial commercial/industrial sales to the Company’s customer mix.  Pinnacle’s commercial/industrial market expertise, supported by a strong management team, supplements theCompany’s historic position in the government/defense marketplace.

The Pittsburgh operation designs, engineers and manufactures printed circuit card assemblies, cables and harnesses, full “box-build” assemblies and electronic/electromechanical systems for customers ina variety of commercial/industrial markets.  The Company believes there will be continued growth in these markets as the trend to outsource non-core-competency manufacturing continues.

The purchase price for the acquired assets was $43.1 million, which includes a post-closing working capital adjustment of approximately $2.1 million, funded by senior bank debt and cash on hand.  In addition,the Company assumed working capital liabilities of approximately $3.7 million, primarily trade accounts payable, and incurred estimated transaction costs of $0.3 million.  The purchase price allocation includes $3.4 million of amortizable intangibles.

****

**Results of Operations – Fiscal 2006 – 2005 – 2004**

***Net Sales****(dollars in thousands)*

|                                                                           | **Fiscal Year Ended** |                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|--------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                       |                                                                    |
|                                                                                                                                                                                                                       | Change                |                                                               |                      |   |  |                      |     |                          |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 2006 vs. 2005         |                                                                    | **2006** |  |  | 2005 |   |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                       |                                                                    |  |  |  |  |  |  |  |  |  |
| Net sales                                                                                                                                                                                                                                                                                                                                                                                                                                              | $7,795                |             |   | **$** | **190,089** |   |   | $ | 182,294 |   |   | $ | 131,510 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                       |                                                                    |  |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                       |                                                                    |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                       |                                                                    |  |  |  |  |  |  |  |  |  |

The primary contributors to the 4.3% increase in sales in fiscal year 2006 were: (i) shipments to government systems customers, primarily postal automation equipment and airport security equipment, which generated sales of$18.7 million versus $7.6 million in 2005 and $13.4 million in 2004; and (ii) shipments of capital equipment to natural resources customers including downhole tools and industrial mining equipment representing $38.9 million of sales versus $35.1 million in 2005 and$18.6 million in 2004. Shipments to defense customers $75.8 million in fiscal 2006, versus $81.2 million in 2005 and $62.6 million in 2004.  LaBarge provided cables and electronic assemblies for a variety of defense applications including aircraft, radar systemsand shipboard programs. Sales in fiscal year 2005included a full year of the results of the Pittsburgh operation, which generated $53.0 million in sales versus $17.6 million in fiscal year 2004.

Sales to the Company’s 10 largest customers represented 69% of total revenue in fiscal 2006 versus 72% in fiscal 2005 and 73% in fiscal 2004.  The Company’s top three customers for fiscal 2006 and the portionof total sales they represented were as follows:  Owens-Illinois, Inc., 12%; Northrop Grumman Corporation, 12%; and Schlumberger Ltd., 11%.

The backlog for the Company at July 2, 2006 was $183.9 million, compared with $164.9 million at July 3, 2005, an increase of 11.5%.  The growth in backlog is the result of a sales and marketing effort that focuses onmatching the Company’s core competencies and the application of those competencies to the outsourcing needs of targeted large customers in a variety of industries.  Approximately $38.9 million of the backlog at fiscal 2006 year-end is scheduled to shipbeyond the next 12 months pursuant to the shipment schedules contained in those contracts.  This compares with $32.4 million at fiscal year-end 2005. Approximately one-third of consolidated sales is booked and shipped within the same fiscal year.  Thebalance of the year’s sales is shipped from the prior year’s ending backlog. 

Continued strength in the majority of the Company’s markets, plus the record backlog at July 2, 2006, contribute to the Company’s expectation for higher sales in fiscal 2007.

******

***Gross Profit****(dollars in thousands)*

|                                                                                        |          | **Fiscal Year Ended** |                                                                                                                                 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|-----------------------|--------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                       |                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                | Change        |                  |                        |   |  |                    |    |                          |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 2006 vs. 2005 |                       | **2006**                                                                                                                             |  |   | 2005 |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                       |                                                                                                                                      |  |  |  |  |  |  |  |  |
| Gross profit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | $(124         | )                     |                                                                                                                                 | **$** | **40,990** | ** ** |   | $ | 41,114 |   |   | $ | 30,372 |   |
| Gross margin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 100           |   bp             |                                                                                                                                      |  | **21.6** | **%** |  |  | 22.6 | % |  |  | 23.1 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                       |                                                                                                                                      |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                       |                                                                                                                                      |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                       |                                                                                                                                      |  |  |  |  |  |  |  |  |

The gross profit margin for fiscal 2006 declined 1 percentage point from 2005, but remained within the Company’s historical range. The Company bids each new contract at a unique margin determined by itsestimate of expected costs and competitive factors.  As a result, the Company expects that individual contract margins will fluctuate.  Total gross margin generally runs in a range of approximately 20% to 23% and the Company expects that range will continuein the foreseeable future. The Company defines gross profit as net sales less cost of sales.

***Selling and Administrative Expense****(dollars in thousands)*

|                                                                                           |          | **Fiscal Year Ended** |                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|-----------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               |                       |                                                                                                                                            |
|                                                                                                                                                                                                                                                                                              | Change        |                       |                         |  |  |                    |  |  |                      |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 2006 vs. 2005 |                       | **2006**                                                                                                                                   |  |  | 2005 |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Selling and administrative expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $58           |                       |                                                                                                                                       | **$** | **23,037** | ** ** |   | $ | 22,979 |   |   | $ | 18,828 |   |
| Percent of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 50            |   bp             |                                                                                                                                            |  | **12.1** | **%** |  |  | 12.6 | % |  |  | 14.3 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               |                       |                                                                                                                                            |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               |                       |                                                                                                                                            |  |  |  |  |  |  |  |  |

Selling and administrative expense in fiscal 2006 increased modestly from 2005 through a combination of higher salaries ($1.1 million), the cost associated with SFAS No. 123R ($0.6 million) and reduced incentive compensation($1.8 million).

Selling and administrative expense increased in fiscal 2005, compared with fiscal 2004, primarily as a result of the inclusion of the Pittsburgh operation for a full year ($2.0 million), higher professional fees due toSarbanes-Oxley compliance ($0.5 million), higher compensation costs due to higher headcount and wage inflation  ($1.0 million), and higher accrued compensation costs due to improved performance in fiscal year 2005 ($0.3 million). As a percent of sales, sellingand administrative expenses declined due to leverage on certain fixed expenses at higher sales levels.

***Interest Expense****(dollars in thousands)*

|                                                                                        |   | **Fiscal Year Ended**                      |                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        |                                            |                                                                                |
|                                                                                                                                                                                                                                                                                                | Change |                                  |               |  |  |                 |  |  |           |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        | 2006 vs. 2005                              |                                                                                | **2006** |  |  | 2005 |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        |                                            |                                                                                |  |  |  |  |  |  |  |  |
| Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $336   |         |                                                                           | **$** | **2,083** |   |   | $ | 1,747 |   |   | $ | 718 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        |                                            |                                                                                |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        |                                            |                                                                                |  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        |                                            |                                                                                |  |  |  |  |  |  |  |  |

Interest expense increased in fiscal 2006 from prior years due to higher average debt levels to finance higher average levels of working capital throughout the year and higher average interest rates.

Interest expense increased in fiscal 2005 from the prior year due to higher average debt levels, significantly impacted by the borrowing of approximately $30 million to fund the acquisition of Pinnacle in February2004.

***Tax Expense from Continuing Operations****(dollars in thousands)*

|                                                                                          |          | **Fiscal Year Ended**                |                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------------------------------------|--------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |               |                                      |                                                              |
|                                                                                                                                                                                                                                                                                        | Change        |                            |            |    |              |    |                |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 2006 vs. 2005 |                                      | **2006**                                                     |  |  | 2005 |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Tax expense from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $261          |        |                                                    | **$** | **6,256** |   |   | $ | 5,995 |   |   | $ | 4,532 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

The effective income tax rate for fiscal 2006 was 39%, compared with 36% and 39% in fiscal years 2005 and 2004, respectively.  The income tax provision is fiscal year 2006 was impacted by additional Sub Part F income fromthe Company’s investment in its offshore captive insurance company.

The decrease in the tax rate in fiscal year 2005 versus the prior year reflects the recognition of certain research and experimentation tax credits ($245,000), previously reserved.

***Discontinued Operations, Net of Tax****(dollars in thousands)*
|                                                                            |   |          | **Fiscal Year Ended**                                                                                      |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |                    |                                                                                                            |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |     | **2006**                                                                                                   |        | 2005 |   |   | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Loss from discontinued operations,                                                                                                                                                                                                                                                                                                                                                                                                                           |        |                    | **                 ** |   |   |               |   |   |   |          |
|  (less applicable income tax benefit of $70,  respectively)                                                                                                                                                                                                                                                                                                                                                                                        |        | **$**              | **---**                                                                                                    | ****   | $ | --- |  | $ | (114 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Income on disposal of discontinued                                                                                                                                                                                                                                                                                                                                                                                                                           |        |                    |                                                                                                            |        |  |  |  |   |                 |  |
|   operations of $20 (less  applicable  income tax expense of $8)                                                                                                                                                                                                                                                                                                                                                                         |        | **$**              | **---**                                                                                                    |        | $ | --- |  | $ | 12 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        |                    |                                                                                                            |        |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

Discontinued operations arose from the sale of the non-railroad ScadaNET NetworkTM remote equipment monitoring business in August 2003.  See Note 2, “Acquisition, Discontinued Operations andInvestments.”

***Net Earnings and Earnings Per Share****(dollars in thousands, except per-share data)*
|                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                            | **Fiscal Year Ended** |           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|-----------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      | **2006**              |           | 2005 |  |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                      | **$**                 | **9,708** |  | $ | **10,870** |  | $ | 6,971 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Net loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | **       **       | **---**               |           |  | --- |  |  | (114 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Gain on disposal, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **        ** | **---**               |           |  | --- |  |  | 12 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **Net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                 | **$**                 | **9,708** |  | $ | **10,870** |   | $ | 6,869 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
| **Basic net earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                      | **$**                 | **0.64**  |  | $ | **0.72** |  | $ | 0.47 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                      |                       | **---**   |  |  | --- |  |  | (0.01 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **Basic net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                      | **$**                 | **0.64**  |  | $ | **0.72** |  | $ | 0.46 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
| **Diluted earnings per share:**                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Net earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                      | **$**                 | **0.60**  |  | $ | **0.68** |  | $ | 0.45 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Loss from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                      |                       | **---**   |  |  | --- |  |  | (0.01 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
| **  **                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **Diluted net earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                      | **$**                 | **0.60**  |  | $ | **0.68** |  | $ | 0.44 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                      |                       |           |  |  |  |  |  |  |

Fiscal  2006 included 52 weeks of operations, compared with 53 weeks in fiscal 2005 and 52 weeks in fiscal 2004.

**Financial Condition and Liquidity**

The following shows LaBarge’s equity and total debt positions:***Stockholders*’*Equity and Debt****(dollars in thousands)*
|                                                              | **Fiscal Year Ended**    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                          |                          |  |  |
|                                                                                                                                                                                                                                                                                                    |      | **2006** |  | 2005 |     |
|                                                                                                                                                                                                                                                                                                                                                                          |
| Stockholders’ equity                                                                                                                                                                                                                                                                                                                                               | **$**                    | **64,834** |   | $ | 53,830 |     |
| Debt                                                                                                                                                                                                                                                                                                                                                                     |                          | **41,668** |   |  | 27,916 |  |
|                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                          |                          |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                          |                          |  |  |  |  |  |

The Company’s continuing operations used $8.6 million of cash in fiscal 2006 compared with providing $13.3 million in fiscal 2005.  Net changes in advance payments from customers were a use of $7.1 million andcontributed $1.1 million to cash flow from continuing operations in fiscal 2006 and fiscal 2005. Day’s sales outstanding declined in fiscal 2006 to 45 days from 50 days in fiscal 2005.  Inventory turned 3.1 times in fiscal 2006 versus 3.2 times in fiscal2005. The increase in inventory was for material acquired for contracts with expected delivery to occur within the next 12 to 15 months. Increases in accounts receivable and inventory in fiscal 2006 were major contributors to the negative cash flow from operations.The Company expects improvements in both these measures to increase cash flow from operations in the coming fiscal year, as year-end accounts receivable balances are collected and inventories are utilized to support fiscal 2007 shipments.

Investing activities, primarily capital expenditures, used $4.4 million in fiscal 2006. Currently, the Company’s total debt-to-equity ratio is .64 to 1 versus .52 to 1 at the end of fiscal 2005.

Overall, management believes availability of funds going forward from cash generated from operations and available bank credit facilities should be sufficient to support the planned operations and capital expenditures of theCompany’s business for the next two fiscal years.

The following shows LaBarge’s contractual obligations as of July 2, 2006:

(*dollars in thousands)*
| **                                             ** | **Payment Due by Period**                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                    |                                                                                                                              |
| **Contractual Obligations**                                                                                                                                                                                                                                                        | **                    ** | ** ** | **Less than** |  | **                           ** | **                  ** | **More than** |
| **Total**                                                                                                                                                                                                                                                                          |                                                                                                                              | **1 year** |  | **1 – 3 years** | **3 – 5 years** | **5 years** |
|                                                                                                                                                                                                                                                                                    |
| Long-term debt and capital lease obligations                                                                                                                                                                                                                                       |    $                                                                                                               | 22,193 |   | $ | 5,791 |         | $ | 11,490 |       | $ | 4,912 |       | $ | --- |  |
| Operating lease obligations                                                                                                                                                                                                                                                        |                                                                                                                              | 9,789 |   |  | 2,055 |   |  | 2,881 |   |  | 2,066 |   |  | 2,787 |   |
|                                                                                                                                                                                                                                                                                    |                                                                                                                              |  |  |  |  |
|   Total                                                                                                                                                                                                                                                                  | $                                                                                                                            | 31,982 |  | $ | 7,846 |  | $ | 14,371 |  | $ | 6,978 |  | $ | 2,787 |  |
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***Off-Balance Sheet Arrangements***The Company has no off-balance sheet arrangements.

***Critical Accounting Policies***The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in certain circumstances that affect amountsreported in the accompanying consolidated financial statements.  In preparing these financial statements, management has made its best estimates and judgment of certain amounts included in the financial statements.  The Company believes there is alikelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below.  Application of these accounting policies involves the exercise of judgment and use ofassumptions as to future uncertainties and, as a result, actual results could differ from these estimates.  The Company’s senior management discusses the accounting policies described below with the audit committee of the Company’s Board of Directorson a periodic basis.The following discussion of critical accounting policies is intended to bring to the attention of readers those accounting policies that management believes are critical to the Company’s consolidated financial statements and other financial disclosures. It is not intended to be a comprehensive list of all of our significant accounting policies that are more fully described in Note 1 of the Notes to the Consolidated Financial Statements.

***Revenue Recognition and Cost of Sales***Revenue is generally recognized on the percentage-of-completion method based upon the units delivered.  The percentage-of-completion method gives effect to the most recent contract value and estimates of cost at completion. Whenappropriate, contract prices are adjusted for increased scope and other changes ordered or caused by the customer.  When percentage-of-completion is not appropriate, the Company recognizes revenue when title transfers, which is usually upon shipment. On a verylimited number of contracts, at a customers’ request, the Company will recognize revenue when ownership passes. As of July 2, 2006 and July 3, 2005, the Company has recognized revenue under these arrangements of $2.4 million and $2.0 million, respectively.The Company recognizes revenue for storage and other related services when the services are provided.Management’s estimates of material, labor and overhead costs on long-term contracts are critical to the Company.  Since some contracts extend over a long period of time, revisions in cost during the progress of work have the effect of adjusting currentperiod earnings applicable to performance in prior periods.  When the current contract cost estimate indicates a loss, provision is made for the total anticipated loss in the period the loss becomes evident.

***Inventories***Inventories, which consist of materials, labor and manufacturing overhead, are carried at the lower of cost or market value. Inventory that has been held beyond specific time limits is automatically reserved. In addition,management regularly reviews inventory for obsolescence to determine whether any additional write-down is necessary.  Various factors are considered in making this determination, including expected program life, recent sales history, predicted trends and marketconditions.  If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.  For the years ended July 2, 2006 and July 3, 2005, expense for obsolete or slow-moving inventorycharged to income before income taxes was $0.9 million and $1.0 million, respectively.

***Goodwill and Other Intangibles***The Company has adopted SFAS No. 142. Under the provisions of this standard, intangible assets deemed to have indefinite lives and goodwill are not subject to amortization.  All other intangible assets are amortized over theirestimated useful lives.  Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  This testing requirescomparison of carrying values to fair values, and when appropriate, the carrying value of impaired assets is reduced to fair value.  During the fourth quarter of 2006, the Company completed its annual impairment test and determined that estimates of fair valueare reasonable. Different assumptions regarding such factors as sales levels and price changes, labor and material cost changes, interest rates and productivity could affect such valuations.

***Recently Issued Accounting Standards***In June 2006, the FASB issued FASB Interpretation Number (“FIN”) 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  FIN 48 establishes a recognition threshold andmeasurement for income tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”  FIN 48 also prescribes a two-step evaluation process for tax positions.  Thefirst step is recognition and the second is measurement.  For recognition, an enterprise judgmentally determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of related appeals or litigationprocesses, based on the technical merits of the position.  If the tax position meets the more-likely-than-not recognition threshold it is measured and recognized in the financial statements as the largest amount of tax benefit that is greater than 50% likely ofbeing realized.  If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements.Tax positions that meet the more-likely-than-not recognition threshold at the effective date of FIN 48 may be recognized or, continue to be recognized, upon adoption of FIN 48.  The cumulative effect of applying the provisions of FIN 48 shall be reported as anadjustment to the opening balance of retained earnings for that fiscal year.  FIN 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted.  The Company is currently evaluating the impact FIN 48 will have on itsconsolidated financial statements when it becomes effective for the Company in fiscal 2008 and is unable, at this time, to quantify the impact, if any, to retained earnings at the time of adoption.