Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: [ X] No: [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information 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” in Rule 12b-2 of the Exchange Act. (Check one):

The aggregate market value of the registrant's common stock held by nonaffiliates computed with reference to the closing price as quoted on the NASDAQ Stock Market, as of the last business day of the registrant’s most recently completed second quarter, June 30, 2006, was approximately $80,952,364. For the purposes of the foregoing, the registrant assumed that affiliates included only the registrant's directors, executive officers and principal shareholders filing Schedules 13D or 13G with respect to the registrant's common stock.

The number of shares outstanding of the registrant’s common stock as of March 2, 2007 was 5,716,206

Documents incorporated by reference: Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after registrant’s fiscal year end December 31, 2006 are incorporated by reference into Part III of this report.

ZEVEX⁽ International, Inc. (“ZEVEX”) through our two divisions, engages in the business of designing, manufacturing, and distributing medical devices. Our Therapeutics division designs, manufactures and markets enteral nutrition pumps, disposable sets and accessories. Our Applied Technology division designs and manufactures advanced medical components and systems for other medical technology companies.

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

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

Our operations focus on our core market offerings of our ambulatory enteral feeding products (our Therapeutics division) and contract manufacturing services (our Applied Technology division). As part of our core business we have executed several strategic agreements with Royal Numico N.V., a Netherlands corporation, which is a world leader in the manufacturing and marketing of clinical nutrition products, related equipment and accessories (see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations).

On January 12, 2007, we executed a definitive Merger Agreement with Moog Inc. (NYSE: MOG.A and MOG.B). Upon the closing of the merger, which is subject to regulatory and shareholder approval, ZEVEX will become a wholly-owned subsidiary of Moog. The merger is expected to close in March 2007.

With facilities worldwide and more than $1.3 billion in annual sales, Moog has developed an outstanding reputation in the medical device, industrial, commercial aviation and aerospace industries. In the medical device business, the Moog product portfolio includes several mechanical and electronic intravenous pumps, as well as disposable sets of numerous configurations. Moog is also well known for its motors and actuators that are presently used in medical devices, including equipment for treating sleep apnea.

Upon the closing of the merger, each share of ZEVEX common stock that is issued and outstanding immediately prior to the closing, and each outstanding restricted stock unit that is convertible into shares of ZEVEX common stock, will be converted into the right to receive from Moog $13.00 in cash. Each outstanding option for shares of common stock will automatically be converted into the right to receive $13.00 per share for each share of common stock that is purchasable pursuant such option, less the per share exercise price of each such share. The maximum aggregate purchase price in the merger is $83.8 million. Moog intends to finance the acquisition from an existing line of credit.

Through the sale of enteral feeding pumps and related devices, we have established a competitive position in the U.S. enteral nutrition delivery market. The market in which we compete includes feeding pumps and

disposable sets that are used by patients who require direct gastrointestinal nutrition therapy (also called enteral feeding). Enteral feeding is the means of providing liquid nutrition to patients who may have experienced head or neck trauma, or have gastrointestinal disorders such as short bowel syndrome, Crohn’s Disease, bowel pseudo-obstruction and other disorders that prevent normal digestion.

In 2006, our Therapeutics division produced significant revenue growth. This revenue growth was the result of increasing sales of our EnteraLite^® Infinity^® portable feeding pump product line in the U.S. and the international roll-out of the Flocare^® Infinity^® product line which we private-label for Nutricia Clinical. Both of these product lines were launched in 2005.

During 2006 our Therapeutics division produced revenue of $27.6 million, achieving growth of 63% over 2005. Based on the growing market acceptance of the EnteraLite^® Infinity^® product line and the continued sales strength of our original EnteraLite^® product line, our domestic Therapeutics sales force produced revenue of $13.4 million, achieving growth of 14% over 2005. Based primarily upon strong sales to Nutricia Clinical, revenue from our international Therapeutics division increased to $14.2 million during 2006, growing 176% over 2005.

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

During 2006, our Applied Technology division experienced sales growth of our core sensors and surgical ultrasound products compared to 2005. Our largest customers for these products continued to post market share gains, from which we have benefited. As a result, our Applied Technology division produced revenue of $14.2 million, growth of 6% for 2006 over 2005.

In 2006, revenue from our two divisions grew 38%, producing consolidated revenue of $41,796,490 and net income of $3,295,770, compared to consolidated revenue of $30,273,922 and net income of $1,905,378 in 2005. We had consolidated revenue of $23,634,355 and a net loss of $178,977 in 2004.

Revenue from our Therapeutics division and from our Applied Technology division constituted 66% and 34%, respectively, of our 2006 consolidated revenue, and 56% and 44%, respectively, of our consolidated revenue for 2005, and 53% and 47%, respectively, of our 2004 consolidated revenue.

We increased our total investment in research and development for both our Therapeutics and Applied Technology businesses by over $400,000 to $1.6 million, in order to bring new products to market. We completed one research and development project leading to the introduction of our small volume enteral feeding pump, the Infinity^® Orange^™ at the American Society of Parenteral and Enteral Nutrition Annual Conference in February 2007. Also, due to our sales growth in 2006, our selling, general and administrative expenses actually decreased as a percentage of sales, from 27% in 2005 to 24% in 2006.

For information regarding our financial condition and results of operations see Item 8 of the report entitled “Financial Statements and Supplementary Data” and Notes to Consolidated Financial Statements included in that item. See also the discussion of the financial performance of our segments in Note 11 to the Consolidated Financial Statements.

We develop and manufacture high-quality, high-value medical products based upon our core competencies in sensing, fluid management, and surgical ultrasound technologies. These products are distributed under our own label as well as private labeling for many major medical device companies.

Domestically, products with our label are distributed via a national sales force that works with home health care companies, medical device marketing companies, and distributors across the United States to provide patients with the best quality products possible. Internationally, we partner with large food companies such as Royal Numico and Nestlé, who distribute our products in over 32 countries.

This distribution strategy allows us to leverage our expertise and technology across diverse applications such as pumps and disposables for enteral feeding; ultrasonic and optoelectronic sensors; ultrasonic handpieces; and drive circuits and interface systems for a variety of medical applications

Through our Therapeutics division, we sell two major lines of enteral feeding pumps and a variety of related disposable delivery sets and accessories. Enteral feeding is a method of delivering nutrition to patients through the gastrointestinal tract. Many enteral feeding patients require continuous administration of nutritional solutions throughout the day, which requires the patient to carry an enteral feeding pump.

We have successfully applied our engineering and regulatory expertise to the development, commercialization, and marketing of our next generation enteral feeding pump, the EnteraLite^® Infinity^®, for patients who require direct gastrointestinal nutritional therapy. We believe that the EnteraLite⁽ Infinity^®pump is the lightest, most compact, most durable, and most mobile enteral feeding pump in the global market, possessing unprecedented safety, accuracy and durability in enteral nutrition delivery. Like its predecessor the EnteraLite⁽, the EnteraLite^® Infinity^®, has unique features which include the ability to operate in any orientation, +/-5% accuracy and a 24-hour battery, which is one-third longer than the battery life of its closest competitor.

The EnteraLite^® Infinity^® builds upon the proven user interface and superior accuracy of the original EnteraLite^® pump, with an expanded feature set that provides benefits of use in a wide variety of enteral feeding applications. The unique features of the EnteraLite^® Infinity^®are the result of input from patients, clinicians, caregivers and durable medical equipment providers. The accuracy, portability, size, and ruggedness of the EnteraLite^® Infinity^® allow patients to remove the traditional barriers of utilizing an enteral feeding pump. In the U.S. today, the most commonly used enteral feeding pumps are mounted on an I.V. pole and the patient is tethered to the pole throughout the feeding, which can take a number of hours. For patients who need to feed during the day, the I.V. pole limits their ability to be physically active. We believe that the EnteraLite^® Infinity^® may provide access to new customers and applications that were previously beyond our reach.

First introduced in 1996, the original EnteraLite⁽ product line gained acceptance in the home health care market due to its superior mobility and state-of-the-art features. We believe that by improving the convenience of nutrition delivery, the EnteraLite⁽ and EnteraLite^® Infinity^®can contribute to better clinical outcomes and improved quality of life for enteral patients. The EnteraLite⁽ and EnteraLite^® Infinity^®require the use of disposable feeding bags and tubing sets, which are also sold by us. ZEVEX has been awarded thirty-five U.S. patents for technology related to the EnteraLite⁽Infinity^®and EnteraLite⁽ and associated disposable sets.

We expanded our line of enteral delivery products with the 1998 acquisition of Nutrition Medical’s line of stationary pumps and delivery sets, and the 2000 acquisition of the installed base of Nestlé USA stationary pumps. We continue to manufacture and distribute these lower cost stationary enteral feeding pumps that

are intended for applications where patients are not mobile. Complementing these pump models are a line of disposable delivery sets sold by us for use with the pumps. These sets include feeding solution bags of various sizes, as well as “spike” sets for use with pre-filled feeding solution containers.

Through our Applied Technology division we provide design and manufacturing services to medical companies who sell our components and systems under private labels or incorporate them into their products. We provide these services for both established and emerging technology companies, such as Cardinal Health, Inc., Advanced Medical Optics, Inc., Baxter Healthcare Corporation, Medtronic Corporation, Smith’s Industries, Inc., Edwards Lifesciences and Terumo Corporation. We offer our customers over 20 years of specialized engineering and manufacturing expertise.

Industry sources indicate a continued trend by medical device companies to outsource their device manufacturing requirements. Many emerging companies do not have the engineering, manufacturing, or regulatory expertise to quickly and efficiently take a device from conception to commercial use. Even larger, well-established companies, which may have the capital to develop such expertise, may lack the required personnel and time to accumulate such expertise or may want to focus their resources in areas other than manufacturing. In the medical device industry in particular, there are substantial regulatory compliance requirements, in both the United States and overseas, that must be addressed in both designing and manufacturing such devices. By focusing our resources and expertise in the design and manufacturing areas, we believe that we offer customers the ability to outsource engineering and manufacturing needs on a cost-effective basis, often allowing the customer to take a product to market more quickly and efficiently, at a lower cost, and with higher quality than a customer could achieve with its own resources.

We use extensive engineering and regulatory expertise to deliver integrated design and manufacturing solutions to our customers. We are registered with the United States Food and Drug Administration (“FDA”) as a medical device manufacturer and have developed internal systems intended to maintain compliance with the FDA’s Good Manufacturing Practices (“GMP”). We also are certified by the International Organization for Standardization (“ISO”) to 9001:2000 and ISO 13485:2003 standards, which means that we have met internationally recognized quality standards for the design, manufacture, and testing of products. We devote significant management time and financial resources to GMP compliance and ISO certification.

Most of our Applied Technology division business involves the following four general product categories:

We design and manufacture ultrasonic phacoemulsification handpieces and handpiece drive circuits for the surgical removal of cataracts. Phacoemulsification is a method of cataract extraction that uses ultrasound waves to break the cataract-obstructed lens of the eye into small fragments that can be removed through a hollow needle. Phacoemulsification is currently used in more than 90 percent of cataract procedures in the United States.

We design and manufacture a variety of non-invasive ultrasonic sensors for the detection of air bubbles and the monitoring of liquid levels in critical medical systems. Our air bubble detectors monitor intravenous fluid lines in drug infusion pumps, hemodialysis machines, blood collection systems, and cardiopulmonary bypass systems. Our liquid level detectors utilize ZEVEX’s patented dry acoustic coupling technology and are used to monitor critical liquid levels in reservoirs employed in cardiopulmonary bypass systems.

We design and manufacture a variety of optical emitters and detectors used in medical applications. Our product capabilities include custom emitter and detector arrays, sensor interface circuits and custom device packaging. Medical applications for our products include diagnostic and therapeutic equipment, such as blood analyzers and dialysis machines.

The highest kind of integration for our contract services involves the design, engineering, and manufacturing of medical systems. During 2006, we provided design and engineering services to Organ Recovery Systems, Inc. and performed on manufacturing contracts to supply LifePort™ hypothermic perfusion transporters and disposable perfusion sets for kidneys. We manufacture the Addition Technologies KV2000, which is a precision vacuum instrument that facilitates the surgical insertion of prescription Intacs^® rings at a depth of 2/3 the thickness of the cornea. We also manufacture the AAR-1000 Active Air Removal Device for Medtronic Cardiac Surgery, a sensing and fluid management subsystem for a cardiopulmonary bypass application.

The following table sets forth the sources of ZEVEX’s total revenue during the last three years, allocated between six product/service categories.

We have extensive design and engineering capabilities that we use for our own product development, as well as for servicing our contract-manufacturing customers. Our engineers have broad experience in designing, engineering, and testing an array of medical devices and systems, with particular expertise in sensors, fluid management, and surgical ultrasound.

Our manufacturing service customers generally rely on us from the outset of their projects for complete design, engineering, component analysis, testing, and regulatory compliance for their devices or systems. In some instances, customers have come to us with final drawings for products that they believe are ready for manufacturing. Our engineers assist sales and marketing personnel in evaluating requests for proposals and in developing proposed solutions, cost estimates, and bids for each product. Our design and engineering services are generally provided to customers on a time-and-materials fee basis, as part of a plan to eventually manufacture the customer’s product.

We have made significant investments in state-of-the-art equipment to support our design and engineering staff, including product performance modeling software, custom test stations, and three-dimensional computer aided design (“CAD”) software. We have independently developed what we believe is the most sophisticated modeling software for ultrasonic surgical device development. We believe that our unique modeling and design capacities hasten product development and improve the quality of the final device.

Our proprietary products are generally assembled and tested at our manufacturing facility in Salt Lake City, Utah. Design, engineering, and manufacturing services for other companies are also provided from our Salt Lake City facility. Our disposable products are sub-contracted to specialty manufacturers.

Software inventory management systems are used to manage inventory and control the ordering process for more than 5,000 parts used in ZEVEX’s and our customers’ products. As the evolution of a device or system reaches production, team members with direct responsibility for purchasing, manufacturing, and quality assurance assume a greater role in the project. The project team develops an assembly process, product testing protocol, and quality assurance procedures to produce high-quality products that satisfy internal and external specifications, as well as the FDA’s GMP and ISO 9001:2000/ISO 13485:2003 quality standards.

We usually provide design and engineering services pursuant to negotiated manufacturing agreements, which address quantity, pricing, warranty, indemnity, and other terms of the relationship. Such contracts may or may not be exclusive manufacturing arrangements, and may or may not include minimum volume requirements. In some cases, no minimum purchase is required. In other cases, a customer commits to purchase a minimum quantity identified in a rolling forecast of production. We warrant our products to be free from defects in materials and workmanship for periods ranging from 90 days to the life of the product.

We purchase our component parts and raw materials from a variety of approved suppliers. We are not dependent on a single supplier for any item, and we believe that we can acquire materials from various sources in adequate quantities and on a timely basis.

We have a network of direct territory managers who sell enteral pumps and disposable delivery sets in the United States. These territory managers have been selected for their experience within the markets in which we sell our products, and they sell directly to home health care service providers, hospitals, nursing homes and medical product distributors. The direct territory managers are regionally supported by specialists with clinical credentials (registered dietitians or nurses), who we hire on an independent contractor basis. We employ a North American sales manager to manage and deploy our sales resources effectively in these major markets.

In the United States, customers generally purchase EnteraLite^® and EnteraLite^®Infinity^®ambulatory enteral feeding pumps directly from us. In cases where a lease or rental is preferred, arrangements are most often made through a third party that specializes in medical equipment financing. Customers then purchase disposable sets as needed. Customers typically purchase 10 - 15 disposable sets per month for each pump that is placed in service.

Due to competition, lower-cost stationary pumps generally have been placed at no up-front cost to the user, in return for set “usage” agreements, which typically require minimum purchases of 12 to 15 disposable sets per pump per month, once the pumps are placed in service. The cost of the pump is then amortized.

In North America, the distribution of the EnteraLite^® and EnteraLite^®Infinity^®ambulatory pump, stationary pumps, and delivery sets are serviced by our sales support manager, inside sales specialists, and customer service department, in addition to the outside sales force described above.

Nestlé is our distributor for the EnteraLite^® in Germany where it also distributes its clinical nutrition products. Medicina distributes the EnteraLite^® in the United Kingdom, and Baxter Healthcare distributes our entire enteral feeding product line in Puerto Rico. During 2006, a version of our stationary pump was manufactured under private label for distribution by Nestlé in Europe.

In August 2005, the clinical nutrition division of Royal Numico, Nutricia Clinical announced the European

launch of the Flocare^® Infinity^® enteral pump. Nutricia Clinical is our exclusive distributor for a private-label version of our EnteraLite^®Infinity^®enteral feeding pump in over thirty countries, including parts of Africa, Asia, Australia, Europe, the Pacific Rim, and South America.

We generate new design and manufacturing projects using direct sales personnel who are trained in our engineering expertise and manufacturing capabilities. Project engineers also participate extensively in sales and marketing activities. We promote our design and manufacturing capabilities at industry trade shows, by advertising in leading industry publications, through our website www.zevex.com, and by obtaining referrals from customers and other persons who are familiar with our services.

We have three major competitors in the U.S. market for enteral feeding pumps. Ross Laboratories, a division of Abbott Laboratories, markets the Patrol⁽ and Quantum⁽ stationary enteral feeding pumps, and the Companion⁽ and Embrace⁽ambulatory enteral feeding pumps. Frost & Sullivan marketing research estimates that Ross holds approximately 46% market share for enteral pumps and delivery sets in both ambulatory and non-ambulatory enteral feeding applications. Kendall Healthcare, a division of Tyco, offers both the Joey⁽and the kangaroo⁽ PET enteral feeding pumps for ambulatory applications, which has limited application because it can be operated only in an upright position. Kendall also markets its new E-pump⁽, Control⁽ and Entriflush⁽ pumps for stationary applications. Frost & Sullivan marketing research estimates that Kendall Healthcare presently holds approximately 25% of the total market for enteral pumps and disposable sets in both ambulatory and non-ambulatory applications. In addition to Ross Laboratories and Kendall Healthcare, a third competitor, Novartis also competes in the U.S. market for stationary enteral nutrition delivery pumps. Frost & Sullivan marketing research estimates that Novartis presently holds approximately 14% of the total U.S. market for enteral pumps and disposable sets in both ambulatory and non-ambulatory applications.

Well-established competitors such as Ross Laboratories, Kendall Healthcare, and Novartis typically bundle products for the greatest advantage in group-purchasing situations. Each of these competitors offers a range of product offerings that exceeds that of ZEVEX. We believe the keys to our ability to compete effectively in the enteral feeding market are the unique features of our product offerings and the benefits to customers who utilize them. We expect to build upon our reputation for innovation that was earned by our EnteraLite⁽ ambulatory enteral feeding pump for mobile enteral patients with the EnteraLite^® Infinity^®and believe that it may provide access to new customers and applications that were previously beyond our reach. We expect to develop products that are complementary to our enteral nutrition delivery product line, particularly those having features that can significantly improve a patient’s quality of life and can ensure safety and ease of enteral administration.

The largest competitors for design and manufacturing services include Benchmark Electronics, Nova Biomedical, Plexus, Inc., Sanmina-SCI Corp., and Sparton Electronics Corporation. These contract manufacturers operate in the medical technology industry, and some have substantially greater financial and marketing resources than we do. Competitive factors in medical device design and manufacturing include technology strengths, quality, regulatory compliance, engineering competence, cost of non-recurring engineering, price of the manufactured product, experience, customer service, and the ability to meet design and production schedules. We believe that our unique expertise in sensing, fluid management, and surgical ultrasound will allow us to compete effectively for contracts involving these technologies.

As of December 31, 2006, we held thirty-six U.S. patents and twenty-six international patents on devices developed by us, with additional forty-seven U.S. and international patents pending. The loss of certain patents that are key to our proprietary products could have a materially adverse effect on our overall business operations. We also rely on trade secrets and confidentiality agreements to protect the proprietary nature of our technologies.

In addition, we own and have applied for numerous trademarks in the United States and abroad. We believe that our trademarks are well recognized in the various markets for our products. With the exception of the Infinity^®, EnteraLite^® and LifeGuard^® trademarks, which are registered for our enteral feeding products, we believe that the loss of any trademark would not have a material adverse effect on our overall business operations.

In addition to the research and development that we conduct on a contract basis, we also devote substantial resources to our internal research and development projects to enhance our Therapeutics technologies and our core technologies in the Applied Technology business. Our research and development efforts are primarily focused in three areas: (1) developing enhancements to our existing technology and proprietary knowledge; (2) developing new proprietary processes and intellectual property to serve new and existing customers within our current business segments; and (3) researching new applications to service the needs of new customers in those segments. As of December 31, 2006, we have twenty-one full-time engineers in research and development, and have several other designers and engineers, including independent contractors, contributing to research and development projects. Our research and development staff performs engineering research and development services for both internal product development and for customers of our Applied Technology division on a fee for service basis. We invested $1,642,519 in 2006, $1,208,466 in 2005, and $1,430,692 in 2004, for internal research and development of new products. In both 2006 and 2005, research and development costs represented approximately 4% of our annual revenue, compared to 6% in 2004.

Historically, large portions of our revenue were not attributable to a single customer. However, during 2006 Numico, the exclusive distributor of certain ZEVEX enteral feeding pumps in over thirty countries, accounted for approximately 31% of revenue, and Cardinal Health, a customer for ultrasonic sensors accounted for approximately 10%. During 2005 Cardinal Health, accounted for approximately 14% of revenue and Numico accounted for approximately 13%. During 2004, McKesson HBOC, a distributor of products in our Therapeutics Division, accounted for approximately 11% of revenue. If any customer with whom we do a substantial amount of business were to encounter financial distress, the customer’s lateness, unwillingness, or inability to pay its obligations to us could have a material adverse effect on our results of operations and financial position.

At December 31, 2006, we had a backlog of approximately $4,717,000 on orders for medical devices to be manufactured for other medical technology companies, as compared to a backlog at December 31, 2005 and 2004, of approximately $8,143,000 and $5,365,000, respectively. We estimate that approximately 95% of this backlog will be shipped before December 31, 2007. As of February 28, 2007, we had a backlog of $6,223,000. For purposes of the above figures, backlog includes product not yet shipped pursuant to purchase orders that have been received by us. This does not include any backlog for our Therapeutics division proprietary products, because we generally hold appropriate levels in inventory for sale to customers. Some of the orders included in the backlog may be canceled or modified by customers without significant penalty. In addition, because customers may place orders for delivery at various times

throughout the year, and because customers may change delivery schedules or cancel orders, our backlog as of any particular date may not necessarily be a reliable indicator of future revenue.

Our manufacturing facility, customers’ medical devices, and our proprietary medical devices are subject to extensive regulation by the FDA under the Food Drug and Cosmetics Act (“FDC Act”). Manufacturers of medical devices must comply with applicable provisions of the FDC Act and associated regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of medical devices, as well as record-keeping requirements, and the reporting of certain information regarding device safety. In addition, our facility is subject to periodic inspection by the FDA for compliance with the FDA’s GMP requirements. To ensure compliance with GMP requirements, we expend significant time, resources, and effort in the areas of training, production, and quality assurance.

For certain medical devices manufactured by us, the customer may need to obtain FDA clearance in the form of a premarket approval (“PMA”) application. Such applications require substantial pre-clinical and clinical testing to obtain FDA clearance. Other medical devices can be marketed without a PMA, but only by establishing, in a 510(k) premarket notification, “substantial equivalence” to a predicate device.

Besides the FDA regulations described above, we are also subject to various state and federal regulations with respect to such matters as safe working conditions, manufacturing practices, fire hazard control, environmental protection, and the disposal of hazardous or potentially hazardous materials. Our operations involve the use and disposal of relatively small amounts of hazardous materials.

Beginning in 1998, all medical device manufacturers were required to obtain the “CE Mark” to sell their products in the European Common Market. The CE Mark is a quality designation given to products that meet certain policy directives of the European Economic Area. We have received and maintain ISO 9001:2000 and ISO 13845:2003 certification, which allows us to CE Mark our own products and assist our customers with obtaining the CE Mark for their products.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on our system of internal controls. If we fail to maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or stockholder litigation. Any inability to provide reliable financial reports could harm our business. Section 404 of the Sarbanes-Oxley Act also requires that our independent auditors report on management’s evaluation of our system of internal controls. We have documented and tested our system of internal controls to provide the basis for our report for the year ended December 31, 2006. The scope of the project and the man-power required complicates the process of developing, documenting, maintaining and testing internal controls. No assurance can be given that in the future there may not be significant deficiencies or material weaknesses that would be required to be reported in the future.

As part of a nationwide investigation into billing practices associated with enteral nutrition delivery products, particularly in regard to billing practices for pumps and disposable delivery sets, on July 2, 2001, the U.S. Office of Inspector General (OIG), served a subpoena on the ZEVEX, Inc. subsidiary. According to published reports, the investigation involved most manufacturers, distributors and health care service providers in the United States enteral pump industry and similar subpoenas were served on many of those parties. The subpoena requested documents relating to our enteral pump customers’ marketing and billing practices. We responded to the subpoena. Since October of 2001 we have not been contacted further by the OIG, although we understand the investigation is proceeding and we intend to cooperate with the investigation if contacted again. At this time we are uncertain as to any future impact this investigation will have on our operations or financial position.

As of February 8, 2007, we employed a total of 178 people in the following areas: 110 in Manufacturing, Testing, Manufacturing Engineering, and Quality Assurance; 20 in Design and Engineering; 22 in Administration; and 26 in Sales and Marketing. We have 169 employees located at our corporate headquarters and manufacturing facility in Salt Lake City, Utah, 8 employees at various other locations throughout the United States and one employee in Europe.

We consider our labor relations to be good, and none of our employees are covered by a collective bargaining agreement. Currently, the local economy is stable and the unemployment rate is moderate in the Salt Lake City metropolitan area, which means that we face competition to attract and retain qualified personnel. However, at the same time, the Salt Lake City metropolitan area has a well-educated work force and is considered an attractive place to live. Accordingly, we do not anticipate having difficulty in attracting and retaining qualified personnel to meet our projected growth, although we believe that labor costs will likely increase moderately.

We believe that we are in compliance with all applicable environmental regulations. We believe that our efforts to comply with federal, state, and local provisions regarding the production and discharge of material into the environment and the protection of the environment will not have a materially adverse effect on our capital expenditures, earnings and our competitive position.

During the 2006 fiscal year, we generated total revenue of $41,796,490, of which $16,926,316 (40%) was considered foreign source revenue. During the 2005 fiscal year, we generated total revenue of $30,273,922, of which $6,805,033 (22%) was considered foreign source revenue. During the 2004 fiscal year, we had total revenue of $23,634,355, of which $3,168,587 (13%) was considered foreign source revenue.

During the last three fiscal years, we have had no long-lived assets, long-term relationships with a financial institution, mortgage or other servicing rights, deferred policy acquisition costs, or deferred assets, in any foreign country.

ZEVEX is a Delaware corporation organized in 1986. It serves primarily as a holding company, conducting business operations through our wholly-owned subsidiary ZEVEX, Inc., a Delaware corporation.

We maintain our executive offices and principal facility at 4314 ZEVEX Park Lane, Salt Lake City, Utah 84123. Our telephone number is (801) 264-1001. We maintain an Internet site at http://www.zevex.com. We make available free of charge through this website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and corporate governance documents including our Code of Ethics as soon as reasonably practicable after we electronically file such material to the Securities and Exchange Commission. Additionally, we also maintain our Code of Ethics for Officers and Directors, Code of Ethics for Employees, charters of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee and other corporate governance documents under the Investor Relations - Corporate Governance section of our website. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-K.

The disclosure and analysis set forth in this 2006 Form 10-K contain certain forward-looking statements, particularly statements relating to future actions, performance or results of current and anticipated products, sales efforts, expenditures, and future financial results. From time to time, we also provide forward-looking statements in other publicly-released materials, both written and oral. These statements are statements that do not relate strictly to historical or current facts. When used in this report or our other publicly-released materials, the words such as “plans,” “expects,” “will,” “estimates,” “believes,” “projects,” “anticipates” and similar expressions, together with other discussion of future trends or results, are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. In all cases, a broad variety of risks and uncertainties, known and unknown, as well as inaccurate assumptions can affect the realization of the expectations or forecasts in those statements. Consequently, while such statements represent our current views, no forward-looking statement can be guaranteed. Actual future results may vary materially.

We undertake no obligation to update any forward-looking statements, but investors are advised to consult any further disclosures by us in our subsequent filings pursuant to the Securities Exchange Act of 1934, as amended. Furthermore, in accordance with the Private Securities Litigation Reform Act of 1995, we provide the following cautionary statements, identifying factors that could cause our actual results to differ materially from expected and historical results. It is not possible to foresee or identify all such factors. Consequently, this list should not be considered an exhaustive statement of all potential risks, uncertainties, and inaccurate assumptions.

Additionally, the following factors should be reviewed for a full understanding of our business and considered in evaluating our prospects for future growth. The occurrence of one or more of the following risks or uncertainties could have a material adverse effect on our business, results of operations, and financial condition.

With respect to our proprietary products, we face numerous technology, regulatory, financial, management and other operational risks, including the following:

The medical products industry is highly competitive. A significant number of our competitors have substantially greater capital resources, research and development staffs, facilities, and substantially greater experience in developing new products, obtaining regulatory approvals, and manufacturing and marketing medical products. Competitors may succeed in marketing products preferable to our products or rendering our products obsolete.

The medical products industry is subject to significant technological change and requires ongoing investment to keep pace with technological development, quality, and regulatory requirements. In order to compete in this marketplace, we will be required to make ongoing investment in research and development with respect to our existing and future products.

We are subject to substantial risks involved in developing and marketing medical products that are regulated by the FDA and foreign agencies. There can be no assurance that we will obtain the necessary FDA or foreign clearances on a timely basis, if at all. As discussed above, commercialized medical products are subject to further regulatory restrictions, which may adversely affect us. Changes in existing laws and regulations or policies could adversely affect our ability to comply with regulatory requirements.

We expend significant time, resources, and effort in the areas of training, production, and quality assurance to maintain compliance with applicable regulatory requirements. There can be no assurance, however, that our manufacturing operations will be found to comply with GMP regulations, ISO standards, or other applicable legal requirements or that we will not be required to incur substantial costs to maintain our compliance with existing or future manufacturing regulations, standards, or other requirements. Our failure to comply with GMP regulations or other applicable legal requirements can lead to warning letters, seizure of non-compliant products, injunctive actions brought by the U.S. government, and potential civil or criminal liability on the part of ZEVEX and officers and employees who are responsible for the activities that lead to any violation. In addition, the continued sale of any instruments manufactured by us may be halted or otherwise restricted.

There can be no assurance that our products will gain any significant market acceptance in their intended target markets, even if required regulatory approvals are obtained.

Revenues for many of the medical devices manufactured by us may be dependent in part on availability of adequate reimbursement for those devices from third-party health care payers, such as government and private insurance plans. There is no assurance that the levels of reimbursements offered by third-party payers will be sufficient to achieve market acceptance of our products.

Our success will depend to a significant extent upon our ability to enhance and expand our current offering of proprietary products and to develop and introduce additional innovative products that gain market acceptance. While we maintain research and development programs and have established various technical advisory boards to assist us, there is no assurance that we will be successful in selecting, developing, manufacturing, and marketing new products or enhancing our existing products on a timely or cost-effective basis. Moreover, we may encounter technical problems in connection with our efforts to develop or introduce new products or product enhancements. Some of the devices currently being developed by us (as well as devices of some of our customers) will require significant additional development, pre-clinical testing and clinical trials, and related investment prior to their commercialization. There can be no assurance that such devices will be successfully developed, prove to be safe or efficacious in clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at reasonable costs, or be successfully marketed.

While we have substantial experience in designing and manufacturing devices, we may still experience technical difficulties and delays with the design and manufacturing of our or our customers’ products. Such difficulties could cause significant delays in our production of products. In some instances, payment by a manufacturing customer is dependent on our ability to meet certain design and production milestones in a timely manner. Also, some major contracts can be canceled if purchase orders thereunder are not completed when due. Potential difficulties in the design and manufacturing process that could be experienced by us include difficulty in meeting required specifications, difficulty in achieving necessary manufacturing efficiencies, and difficulty in obtaining materials on a timely basis.

We currently have a limited domestic direct sales force consisting of twenty full-time employees, complemented by a network of clinical support personnel. We anticipate that we will need to increase our marketing and sales capability significantly to more fully penetrate our target markets, particularly as

additional proprietary devices become commercially available. There can be no assurance that we will be able to compete effectively in attracting and retaining qualified sales personnel or independent manufacturer’s representatives as needed or that such persons will be successful in marketing or selling our services and products.

If a device that is designed or manufactured by us is found to be defective, whether due to design or manufacturing defects, improper use of the product, or other reasons, the device may need to be recalled, possibly at our expense. Furthermore, the adverse effect of a product recall on us might not be limited to the cost of a recall. For example, a product recall could cause a general investigation of ZEVEX by applicable regulatory authorities, as well as cause other customers to review and potentially terminate their relationships with us. Recalls, especially if accompanied by unfavorable publicity or termination of customer contracts, could result in substantial costs, loss of revenues, and a diminution of our reputation.

Our success in contract manufacturing depends largely on the success of our customers and their need for our manufacturing services and on the devices designed and manufactured by us for those customers. Any unfavorable developments or adverse effects on the sales of those devices or such customers’ businesses, results of operations, or financial position could have a corresponding adverse effect on us. In addition, we sell certain types of medical devices to multiple customers and, to the extent there is an unfavorable development affecting the sales of any such type of device generally, the adverse effect of such development on us would be more substantial than that presented by the decline in sales to a single customer for such type of device. Additionally, we believe that our design and manufacturing customers and their devices (and ours indirectly) are generally subject to the following risks:

The medical device industry is highly competitive and subject to significant technological change. Participation in such industries requires ongoing investment to keep pace with technological developments and quality and regulatory requirements. These industries consist of numerous companies, ranging from start-up to well-established companies. Many of our customers have a limited number of products, and some market only a single product. As a result, any adverse development with respect to these customers’ products may have a material adverse effect on the business and financial condition of such customers, which may adversely affect those customers’ ability to purchase and pay for their products manufactured by us. The competitors and potential competitors of our customers may succeed in developing or marketing technologies and products that will be preferred in the marketplace over the devices manufactured by us for our customers or that would render our customers’ technology and products obsolete or noncompetitive.

A number of our customers are emerging medical technology companies that have competitors and potential competitors with substantially greater capital resources, research and development staff and facilities, and substantially greater experience in developing new products, obtaining regulatory approvals, and manufacturing and marketing medical products. Approximately six customers, representing 5% of our revenue in fiscal year 2006, were, in our opinion, emerging medical technology companies. These customers may not be successful in launching and marketing their products, or may not respond to pricing, marketing, or other competitive pressures or the rapid technological innovation demanded by the marketplace. As a result, these customers may experience a significant drop in product revenues, which may hamper their ability to continue as our customer or even pay for services and products that we have already delivered.

The FDA regulates many of the devices manufactured by us under the FDC Act, which requires certain clearances from the FDA before new medical products can be marketed. There can be no assurance that our customers will obtain such clearances on a timely basis, if at all. The process of obtaining a PMA or a 510(k) clearance from the FDA could delay the introduction of a product to market. A customer's failure to comply with the FDA’s requirements can result in the delay or denial of its PMA. Delays in obtaining a PMA are frequent and could result in our customers delaying or canceling orders to us. Many products never receive a PMA. Similarly, 510(k) clearance may be delayed, and in some instances, 510(k) clearance is never obtained.

Once a product is in commercial distribution, discovery of product problems or failure to comply with regulatory standards may result in restrictions on the product's future use or withdrawal of the product from the market despite prior governmental clearance. There can be no assurance that product recalls, product defects, or modification or loss of necessary regulatory clearance will not occur in the future.

Sales of our medical products outside the United States are subject to regulatory requirements that vary widely from country to country. The time required to obtain clearance for sale in foreign countries may be longer or shorter than that required for FDA clearance, and the requirements may differ. The FDA also regulates the sale of exported medical devices, although to a lesser extent than devices sold in the United States. In addition, our customers must comply with other laws generally applicable to foreign trade, including technology export restrictions, tariffs, and other regulatory barriers. There can be no assurance that our customers will obtain all required clearances or approvals for exported products on a timely basis, if at all.

Medical devices manufactured by us and marketed by our customers pursuant to FDA or foreign clearances or approvals are subject to pervasive and continuing regulation by the FDA and certain state and foreign regulatory agencies. FDA enforcement policy prohibits the marketing of approved medical products for unapproved uses. Our customers control the marketing of their products, including representing to the market the approved uses of their products. If a customer engages in prohibited marketing practices, the FDA or another regulatory agency with applicable jurisdiction could intervene, possibly resulting in marketing restrictions, including prohibitions on further product sales, or civil or criminal penalties.

Changes in existing laws and regulations or policies could adversely affect the ability of our customers to comply with regulatory requirements. There can be no assurance that we or a customer of ours will not be required to incur significant costs to comply with laws and regulations in the future, or that such customer or we will be able to comply with such laws and regulations.

There can be no assurance that the products that we design and manufacture for our customers will gain any significant market acceptance, even if required regulatory approvals are obtained. Some of our customers, especially emerging technology companies, have limited or no experience in marketing their products and have not made marketing or distribution arrangements for their products. Our customers may be unable to establish effective sales, marketing, and distribution channels to successfully commercialize their products.

Rapid change and technological innovation characterize the marketplace for medical products. As a result, ZEVEX and our customers are subject to the risk of product and inventory obsolescence, whether from prolonged development, government approval cycles, or the development of improved products or processes by competitors. In addition, the marketplace could conclude that the task for which a customer’s medical product was designed is no longer an element of a generally accepted diagnostic or treatment regimen.

Some of our customers, especially the emerging medical technology companies, are not profitable and may have little or no revenues, but they have significant working capital requirements. Such customers may be required to raise additional funds through public or private financings, including equity financings. Adequate funds for their operations may not be available when needed, if at all. Insufficient funds may require a customer to delay development of a product, clinical trials (if required), or the commercial introduction of the product or may prevent such commercial introduction altogether.

Sales of many of the medical devices that are manufactured by us will be dependent in part on availability of adequate reimbursement for those devices from third-party health care payers, such as government and private insurance plans, health maintenance organizations, and preferred provider organizations. Third-party payers are increasingly challenging the pricing of medical products and services. There can be no assurance that adequate levels of reimbursement will be available to enable our customers to achieve market acceptance of their products. Without adequate support from third-party payers, the market for the products of our customers may be limited.

Uncertainty of Market Acceptance of Outsourced Manufacturing of Medical Devices

We believe that acceptance in the marketplace for outsourcing of design and manufacturing of advanced medical products for medical technology companies varies from year to year and is still uncertain. Many of our potential customers have internal design and manufacturing facilities. Our engineering and manufacturing activities require that customers provide us with access to their proprietary technology and relinquish the control associated with internal engineering and manufacturing. As a result, potential customers may decide that the risks of outsourcing engineering or manufacturing are too great or exceed the anticipated benefits of outsourcing. In addition, medical technology companies that have previously made substantial investments to establish design and manufacturing capabilities may be reluctant to out-source those functions. If the medical technology industry generally, or any significant existing or potential customer, concludes that the disadvantages of outsourcing manufacturing outweigh the advantages, we could suffer a substantial reduction in the size of one or more of our current target markets, which could have a materially adverse effect on our business, results of operations, and financial condition.

We face competition from design firms and other manufacturers that operate in the medical device industry. Many competitors have substantially greater financial and other resources than we do. Also, manufacturers focusing in other industries may decide to enter into the industries served by us. Competition from any of the foregoing sources could place pressure on us to accept lower margins on our contracts or lose existing or potential business. To remain competitive, we must continue to provide and develop technologically advanced manufacturing services, maintain quality, offer flexible delivery schedules, deliver finished products on a reliable basis, and compete favorably on the basis of price and the value that we provide. There can be no assurance that we will be able to compete favorably with respect to these factors.

No assurances can be given that our customers will continue to do business with us or that the volume of their orders for our contract manufactured devices and proprietary products will increase or remain constant. The loss of several customers, or a significant reduction in the volume of their orders to us, could have a material adverse impact on our operations. In addition, if one or more of these customers were to seek and obtain price discounts from us for our contract manufactured devices or proprietary products, the resulting lower gross margins on those devices and products could have a materially adverse effect on our overall results of operations. If any customer with whom we do a substantial amount of business were to encounter financial distress, the customer’s lateness, unwillingness, or inability to pay its obligations to us could result in a materially adverse effect on our results of operations and financial condition.

Our agreements with major manufacturing customers generally permit the termination of the agreements before their expiration if certain events occur that are materially adverse to the design, development, manufacture, or sale of the product. Examples of such events include the failure to obtain or the withdrawal of regulatory clearance or an alteration of regulatory clearance that is materially adverse to the customer or which prohibits or interferes with the manufacture or sale of the products. The performance of agreements with major customers may be suspended or excused if certain conditions, generally beyond the control of the customer or us (so-called force majeure events), cause the failure or delay of performance.

Our pump usage agreements, under which enteral feeding pumps are placed with users in exchange for a commitment by the user to buy disposable products from us, generally require only monthly commitments, and users can terminate any purchase obligation by returning the pump. Thus, there is no assurance of continued revenue from pumps placed with such users.

The manufacture and sale of products, especially medical products, entails an inherent risk of product liability. We maintain product liability insurance with limits of $1 million per occurrence and $2 million in the aggregate and an umbrella policy with a $10 million limit. There can be no assurance that such insurance is adequate to cover potential claims or that we will be able to obtain product liability insurance on acceptable terms in the future or that any product liability insurance subsequently obtained will provide adequate coverage against all potential claims. Such claims may be significant in the medical products area where product failure may result in loss of life or injury to persons. Additionally, we generally provide a design defect warranty and in some instances indemnification to customers for failure to conform to design specifications and against defects in materials and workmanship, which could subject us to a claim under such warranties or indemnification.

ZEVEX is substantially dependent upon our key managerial, technical and engineering personnel, particularly our two executive officers, David McNally, President and Chief Executive Officer, and Phillip McStotts, Chief Financial Officer and Secretary/Treasurer. ZEVEX must also attract and retain highly qualified engineering, technical, and managerial personnel. Competition for such personnel is intense, the available pool of qualified candidates is limited, and there can be no assurance that we will attract and retain such personnel. The loss of our key personnel could have a material adverse effect on our business, results of operations, and financial condition. None of our key personnel have employment agreements with ZEVEX.

We carry key-man life insurance on the lives of our Chief Executive Officer and Chief Financial Officer in the amount of $2,000,000 each. No assurances can be given that such insurance would provide adequate compensation to ZEVEX in the event of the death of either key employee.

As of December 31, 2006, we held thirty-six U.S. patents and twenty-six international patents on devices developed by us, with additional forty-seven U.S. and international patents pending. Such patents disclose certain aspects of our technologies and there can be no assurance that others will not design around the patent and develop similar technology. We believe that our devices and other proprietary rights do not infringe on any proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future.

As of February 16, 2007, the current executive officers and directors of ZEVEX, together with those persons who are the beneficial owners of more than 5% of ZEVEX’s Common Stock, beneficially own or have voting control over approximately 19% of the outstanding Common Stock. Accordingly, these individuals have the ability to influence the election of ZEVEX’s directors and most corporate actions. This concentration of ownership, together with other provisions in ZEVEX’s charter and applicable corporate law, may also have the effect of delaying, deterring, or preventing a change in control of ZEVEX.

We rely on third-party suppliers for many of the component parts used in manufacturing our own products and those of our customers. Although component parts are generally available from multiple suppliers, certain component parts may require long lead times, and we may have to delay the manufacture of devices from time to time due to the unavailability of certain component parts. In addition, even if component parts are available from an alternative supplier, we could experience additional delays in obtaining component parts if the supplier has not met our vendor qualifications. Component shortages for a particular device may adversely affect our ability either to meet the production plans for our own devices or to satisfy customer orders for that device. Such shortages and extensions of production schedules may delay the recognition of revenue by us and may in some cases constitute a breach of a customer contract. If shortages of component parts continue or if additional shortages should occur, we may be forced to pay higher prices for affected components or delay manufacturing and shipping particular devices, either of which could adversely affect subsequent customer demand for such devices.

The medical technology industry reflects vigorous competition among its participants. As a result, our customers sometimes require us to enter into non-competition agreements that prevent us from manufacturing instruments or components for our customers’ competitors in certain fields of use. Such restrictions generally apply during the term of the customer’s manufacturing contract and, in some instances, for a period following termination of the contract. If we enter into a non-competition agreement, we may be adversely affected if our customer’s product is not successful and we must forgo an opportunity to manufacture a successful product for such customer’s competitor. Any conflicts among our customers could prevent or deter us from obtaining contracts to manufacture successful products.

We believe that our existing capital resources and amounts available under our existing bank line of credit will satisfy our anticipated capital needs for the next year (depending primarily on our growth rate and our results of operations). The commercialization of proprietary products, which is an element of our growth strategy, would require increased investment in working capital and could therefore shorten this period. Thereafter, we may be required to raise additional capital or increase our borrowing capacity, or both. There can be no assurance that alternative sources of equity or debt will be available in the future or, if available, will be on terms acceptable to us. Also, any additional equity financing would result in additional dilution to our shareholders.

We believe our financial performance is dependent in part on our ability to provide prompt, accurate, and complete services to our customers on a timely and competitive basis. Accordingly, delays in distribution in our day-to-day operations or material increases in the costs of procuring and delivering products could have an adverse effect on our results of operations. Any failure of either our computer operating system or our telephone system could adversely affect our ability to receive and process customers’ orders and ship products on a timely basis. Strikes or other service interruptions affecting Federal Express Corporation, United Parcel Service of America, Inc., or other common carriers used by us to receive necessary components or other materials or to ship our products also could impair our ability to deliver products on a

Our annual and quarterly operating results are affected by volume and timing of customer orders, which vary due to (i) variation in demand for the customers’ products or services as a result of, among other things, product life cycles, competitive conditions, and general economic conditions, (ii) the customers’ attempt to balance their inventory, (iii) the customers’ need to adapt to changing regulatory conditions and requirements, and (iv) changes in the customers’ preference or strategies. Technical difficulties and delays in the design and manufacturing processes may also affect such results. The foregoing factors may cause fluctuations in revenues and variations in product mix, which could in turn cause fluctuations in our gross margin.

Under the terms of our contracts with many of our contract manufacturing customers, the customers have broad discretion to control the volume and timing of product deliveries. Further, the contracts with our customers typically have no minimum purchase requirements. As a result, production may be reduced or discontinued at any time. Therefore, it is difficult for us to forecast the level of customer orders with certainty, making it difficult to schedule production and maximize manufacturing capacity. Other factors that may adversely affect our annual and quarterly results of operations include inexperience in manufacturing a particular product, inventory shortages or obsolescence, increasing labor costs or shortages, low gross margins on particular projects, an increase in lower-margin product revenue as a percentage of total revenues, price competition, and regulatory requirements. Because our business organization and our related cost structure anticipate supporting a certain minimum level of revenues, our limited ability to adjust the short-term cost structure would compound the adverse effect of any significant revenue reduction.

To maintain the secrecy of some of our proprietary information, we rely on a combination of trade secret laws and internal security procedures. We typically require our employees, consultants, and advisors to execute confidentiality and assignment of inventions agreements. There can be no assurance, however, that the common law, statutory, and contractual rights on which we rely to protect our intellectual property and confidential and proprietary information will provide us with adequate or meaningful protection. Third parties may independently develop products, techniques, or information that are substantially equivalent to the products, techniques, or information that we consider proprietary. In addition, proprietary information regarding us could be disclosed in a manner against which we have no meaningful remedy. Disputes regarding our intellectual property could force us into expensive and protracted litigation or costly agreements with third parties. An adverse determination in a judicial or administrative proceeding or failure to reach an agreement with a third party regarding intellectual property rights could prevent us from manufacturing and selling certain of our products.

Historically, the market for ZEVEX’s Common Stock has been limited due to the relatively low trading volume and the small number of brokerage firms acting as market makers. ZEVEX’s Common Stock is listed on the NASDAQ Stock Market. No assurance can be given, however, that the market for the Common Stock will continue or increase or that the prices in such market will be maintained at their present levels.

Announcements of technological innovations for new commercial devices by us or our competitors, developments concerning our proprietary rights, or the public concern as to the safety of our devices may have a material adverse impact on our business and on the market price of our Common Stock. The market price of ZEVEX Common Stock may be volatile and may fluctuate based on a number of factors, including

significant announcements by us and our competitors, quarterly fluctuations in our operating results, and general economic conditions and conditions in the medical device industry. In addition, in recent years the stock market has experienced extreme price and volume fluctuations, which have had a substantial effect on the market prices for many medical device companies and are often unrelated to the operating performance of such companies.

Any future major acquisition or expansion by us may include the issuance of additional common shares or other stocks or instruments that may be authorized without shareholder approval. The issuance of subsequent securities may also result in substantial dilution in the percentage of the Common Stock held by existing shareholders at the time of any such transaction. Moreover, the shares or warrants issued in connection with any such transaction may be valued by our management based on factors other than the trading price on the NASDAQ Stock Market.

Impact of Anti-Takeover Measures; Possible Issuance of Preferred Stock; Classified Board

Certain Provisions of our Certificate of Incorporation and Bylaws and the Delaware General Corporation Law may have the effect of preventing, discouraging, or delaying a change in the control of ZEVEX and may maintain the incumbency of our Board of Directors and management. Such provisions could also limit the price that certain investors might be willing to pay in the future for shares of ZEVEX Common Stock. Pursuant to our Certificate of Incorporation, the Board of Directors is authorized to fix the rights, preferences, privileges, and restrictions, including voting rights, of unissued shares of ZEVEX Preferred Stock and to issue such stock without any further vote or action by our stockholders. The rights of the holders of ZEVEX Common Stock will be subject to and may be adversely affected by the rights of the holders of any Preferred Stock that may be created and issued in the future.

In addition, stockholders do not have the right to cumulative voting for the election of directors. Furthermore, our Certificate and Bylaws provide for a staggered board whereby only two to three of the total number of directors are replaced or re-elected each year. The Certificate also provides that the provisions of the Certificate relating to the number, vacancies, and classification of the Board of Directors may only be amended by a vote of at least 66 2/3% of the shareholders. Finally, the Bylaws provide that special meetings of the stockholders may only be called by the President or any Director of ZEVEX or pursuant to a resolution adopted by a majority of the Board of Directors.

ZEVEX is subject to Section 203 of the Delaware General Corporation Law (“Section 203”), which restricts certain transactions and business combinations between a corporation and an “Interested Stockholder” owning 15% or more of the corporation’s outstanding voting stock for a period of three years from the date the stockholder becomes an Interested Stockholder. Subject to certain exceptions, unless the transaction is approved in a prescribed manner, Section 203 prohibits significant business transactions such as a merger with, disposition of assets to, or receipt of disproportionate financial benefits by the Interested Stockholder, or any other transactions that would increase the Interested Stockholder’s proportionate ownership of any class or series of the corporation’s stock.

Our international business is subject to risks customarily encountered in foreign operations, including changes in a specific country’s or region’s political or economic conditions, nationalization, trade protection measures, import or export licensing requirements, the overlap of different tax structures, unexpected changes in regulatory requirements, or other restrictive government actions such as capital regulations. We are also exposed to foreign currency exchange rate risk inherent in our foreign sales commitments and anticipated foreign sales because the prices charged for our products are denominated in U.S. dollars. Consequently, our foreign sales commitments and anticipated sales could be adversely affected by an appreciation of the U.S. dollar relative to other currencies.

Our executive offices, administrative offices, and manufacturing facility are located in our 51,000 square foot, mixed-use building in Salt Lake City, Utah. This building was constructed in 1997 to our specifications and is subject to an Industrial Development Bond (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources”). The building is situated on nearly four acres of land a few miles from the downtown area. It allows quick access to two major interstate freeways and to the Salt Lake International Airport. We currently utilize approximately 70% of the building’s available space and believe that the building will be adequate to serve our needs through the end of the year 2007.

The following is a brief description of certain legal proceedings to which we were a party or to which our properties are subject. In management’s opinion, the legal proceeding described below is not expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.

On February 23, 2006, ZEVEX International, Inc., (the “Company”) filed a complaint in the United States District Court, alleging the infringement of certain patents by a medical device manufacturer. The complaint alleged that the manufacturer made, sold and offered for sale infusion pumps that utilized ZEVEX patented technology. On April 7, 2006, the parties entered into a Settlement Agreement under which the Company granted a non-exclusive royalty-free license to the manufacturer to use certain Patents in the intravenous infusion pump market and dismissed the lawsuit within seven days of settlement. The Settlement Agreement also provided that the manufacturer would pay to the Company the sum of One Million Dollars ($1,000,000), provide a covenant not to sue under certain claims of Patents held by the manufacturer, and provide appropriate patent markings on manufactured product. Such amount is included net of associated legal costs in the statement of operations for the year-ended December 31, 2006.

ZEVEX’s Common Stock is traded on the National Market system of The NASDAQ Stock Market, under the symbol ZVXI. As of February 5, 2007, there were 135 holders of record of ZEVEX’s Common Stock (calculated without reference to individual participants in securities position listings). Based on the number of proxy materials requested by brokers and other record holders for distribution to beneficial owners for ZEVEX’s 2007 Annual Meeting, we estimate there are roughly 2,035 beneficial owners of ZEVEX Common Stock. ZEVEX has never declared or paid any cash dividends on its Common Stock. ZEVEX currently intends to retain all future earnings to finance future growth and does not anticipate paying any cash dividends in the foreseeable future. We have a negative covenant in our bank line of credit agreement that prevents the payment of any cash dividend without prior approval of the bank.

The following table lists the high and low sales prices for ZEVEX Common Stock for each full quarterly period since January 1, 2005. All per share data give effect to the stock split, applied retrospectively, to all

The following selected statement of operations data for the years ended December 31, 2006, 2005, and 2004, and the balance sheet data as of December 31, 2006 and 2005, are derived from the audited consolidated financial statements included in this report and should be read in conjunction with those consolidated financial statements and notes thereto. The selected statement of operations data for the years ended December 31, 2003 and 2002, and the balance sheet data as of December 31, 2004, 2003, and 2002, are derived from the audited consolidated financial statements of ZEVEX, which are not included herein, and are qualified by reference to such financial statements and the notes thereto. The selected consolidated financial data set forth below is also qualified in its entirety by, and should be read in conjunction with the Consolidated Financial Statements and Notes thereto and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this report. All earnings per share and shares outstanding data give effect to the stock split in May 2006, applied retrospectively, to all periods presented.

	Fiscal Year Ended December 31
	2006	2005	2004	2003	2002
Statement of Operations Data
Revenues	$41,796,490	$30,273,922	$23,634,355	$25,869,876	$25,495,733
Gross profit	14,066,984	11,349,552	8,456,978	8,323,795	11,119,989
Selling, general and administrative expenses	9,939,710	8,091,996	7,142,513	8,316,822	9,124,197
Research and development expenses	1,642,519	1,208,466	1,430,692	1,817,581	1,289,609
Asset and goodwill impairment	31,073	--	--	1,566,967	--
Operating income (loss)	2,453,682	2,049,090	(116,227)	(3,377,575)	706,183
Loss on sale of business	--	--	--	(4,692,445)	--
Impairment loss on marketable securities	--	(27,525)	--	--	--
Other (income)/expenses	(909,883)	112,592	93,972	276,234	486,664
Provision (benefit) for income taxes	67,795	3,595	(31,222)	(68,712)	5,216
Net income (loss)	3,295,770	1,905,378	(178,977)	(8,277,542)	214,303
Net income (loss) per share basic	.59	.37	(.04)	(1.62)	.04
Weighted average shares outstanding	5,539,588	5,125,242	5,101,446	5,101,446	5,122,269
Net income (loss) per share diluted	.54	.35	(.04)	(1.62)	.04
Weighted average shares outstanding, assuming dilution	6,149,925	5,512,811	5,101,446	5,101,446	5,127,417

	2006	2005	2004	2003	2002
Balance Sheet Data
Total assets	$26,991,363	$20,850,381	$17,400,982	$19,732,085	$28,798,236
Total current liabilities	4,921,423	3,964,247	2,711,603	4,688,891	5,679,446
Long-term debt (less current portion)	1,650,786	1,810,143	1,966,362	2,119,608	1,662,536
Stockholders' equity	20,419,154	15,075,991	12,723,017	12,923,586	21,198,061

Please refer to Item 7 of this report for a discussion of the main factors causing the substantial changes in certain of the items set forth above, particularly when comparing the year 2006 to earlier periods. Also refer to Item 7 of this report for a discussion of Factors that May Affect Future Results, which describe material uncertainties that might cause the items set forth above to not be indicative of our future financial condition or results of operations.

Through our two divisions, we engage in the business of designing, manufacturing, and distributing medical devices. Our Therapeutics division markets enteral nutrition delivery devices. Our Applied Technology division designs and manufactures advanced medical components and systems for other medical technology companies. Please refer to Note 11 of the Audited Consolidated Financial Statements for discussion of our business segments.

Our Therapeutics division products include ambulatory enteral feeding pumps and related disposable sets for mobile patients, as well as stationary enteral feeding pumps and disposable sets. We entered the home health care segment of the enteral nutrition delivery market in 1996 with the introduction of the EnteraLite⁽ ambulatory enteral feeding pump, which gained market share due to its superior mobility and state-of-the-art features. We believe that by improving the convenience of nutrition delivery, first with the EnteraLite⁽ and now with the EnteraLite^® Infinity^®we can contribute to better clinical outcomes and improved quality of life for enteral patients.

In 2006, our Therapeutics division produced revenue of $27.6 million, achieving growth of 63% over 2005. Based on the growing market acceptance of the EnteraLite^® Infinity^® product line and the continued sales strength of our original EnteraLite^® product line, our domestic Therapeutics sales force produced revenue of $13.4 million, achieving growth of 14% over 2005. Based primarily upon strong sales to Nutricia Clinical, revenue from our international Therapeutics division increased to $14.2 million during 2006, growing 176% over 2005.

Our growth in our ambulatory enteral feeding products has been partially offset by decreases in sales of our stationary pumps. Our planned growth and expansion into the long-term care market has not materialized due to continued downward competitive pricing pressure in this market segment. The result is that our revenue in the stationary enteral feeding pump business decreased by approximately 12% in 2006.

Our Applied Technology division began in 1987, offering an increasingly broad array of specialized design and manufacturing services to large, multinational medical companies. Our core technologies are in the areas of sensing, fluid management and surgical ultrasound. Our customers typically incorporate our components and systems under private label with their primary products. In 2006, our largest Applied Technology customers posted market share gains, from which we benefited. As a result, the Applied Technology division produced revenue of $14.2 million in 2006, achieving growth of 6% during the year, compared with growth of 20% in 2005.

As an aid to understanding our operating results, the following table sets forth, for the periods indicated, the relative percentages that certain items in the statement of operations bear to revenue.

Year Ended December 31 Statement of Operations Data -- Percentage of Revenue

	2006	2005	2004	2003	2002
Revenue	100%	100%	100%	100%	100%
Gross profit	34%	37%	36%	32%	44%
Selling, general and administrative expenses	24%	27%	30%	32%	36%
Research and development expenses	4%	4%	6%	7%	5%
Asset and goodwill impairment	--%	--%	--%	6%	--%
Operating income (loss)	6%	6%	--%	(13)%	3%
Loss on sale of business	--%	--%	--%	(18)%	--%
Impairment loss on securities	--%	--%	--%	--%	--%
Other income/(expense)	2%	--%	--%	(1)%	(2)%
Income (loss) before income taxes	8%	6%	(1)%	(32)%	1%
Provision (benefit) for income taxes	--%	--%	--%	--%	--%
Net income (loss)	8%	6%	(1)%	(32)%	1%

Our revenue increased by approximately 38% during 2006, to $41,796,490, compared to $30,273,922 for

2005. Therapeutics products generated 66% of revenue and Applied Technology products generated 34% of total revenue during 2006. During 2006, two customers accounted for approximately 31% and 10%, respectively, of our revenue. During 2005, two customers accounted for approximately 14% and 13%, respectively, of our revenue.

Our Therapeutics division revenue increased 63% to $27,607,961 during 2006, compared to $16,899,383 in 2005. The increase in revenue from last year is due to an increase of 176%, in our international Therapeutics revenue largely due to increased sales to Nutricia Clinical. Nutricia Clinical is our exclusive European distributor for the Flocare^® Infinity^®, a private-label version of our EnteraLite^® Infinity^®. Our domestic EnteraLite^® Infinity^® and EnteraLite⁽ portable feeding pump and disposable set revenue increased 22% over 2005. These increases were partially offset by a decrease of 12%, in sales of our stationary enteral feeding delivery products within our Therapeutics division.

Our Applied Technology division revenue increased 6% to $14,188,529 during 2006, compared to $13,374,539 in 2005. Specifically, during 2006, sensor revenue increased approximately 9%, and surgical handpiece revenue increased 11% over 2005, because our largest customers for these products posted market share gains, and substantially increased purchases of our products from which we benefited. Applied Technology engineering services revenue increased 123% to $969,000 during 2006 compared to $435,000 in 2005. Our medical systems revenue decreased approximately 29% in 2006, to $1,816,000, from $2,559,000 for 2005, due to a reduction in demand from one particular customer.

Our gross profit as a percentage of revenue was approximately 34% for 2006, compared to 37% for 2005. We primarily attribute this decrease to the following four factors. First, the product mix delivered by each business division differed during the periods in 2006 and 2005. Specifically, during 2006, our revenue was greater in lower margin products than in the prior year. Second, we incurred one-time costs associated with the transfer of manufacturing of the enteral disposable products of our Therapeutics division to a new third-party supplier. Third, we generated lower-margin pump servicing activities revenue of approximately $2,965,000 in 2006. The service relates to the maintenance of Nutricia Clinical’s enteral feeding pumps and is performed on our behalf by our third party provider in Europe. Although this service business generates operating margin, the gross margin on service is well below our corporate average. Fourth, material costs have increased over the prior year at a rate that was greater than expected. Our engineers in research and development and operations are currently executing cost reduction initiatives that we expect will allow us return to prior levels of gross margin by the end of the first half of 2007. Please refer to Note 11 of the Audited Consolidated Financial Statements for discussion of our business segments including gross profit and the Company’s definition of contribution margin.

Depreciation and amortization expenses increased to $756,934 in 2006 from $710,612 in 2005. The increase is primarily due to the increased investment in tooling related to disposable products of our Therapeutics division.

Selling, general and administrative expenses increased during 2006 to $9,939,710, from $8,091,996 in 2005. The increases for these periods are primarily related to increased investments in sales and marketing, and increased general and administrative expenses, including recruiting expenses, personnel and insurance costs, legal fees, non-cash stock-based compensation expense, incentive bonus accruals, Sarbanes-Oxley Section 404 compliance costs, and transaction costs related to various business opportunities and the current proposed merger with Moog, Inc. However, due to our sales growth in 2006, our selling, general and administrative expenses actually decreased as a percentage of sales, from 27% in 2005 to 24% in 2006 even when including the additional expenses incurred during the year relating to Sarbanes-Oxley Section 404 compliance costs, transaction costs related to various business opportunities and the current proposed merger with Moog, Inc. As mentioned above, we incurred expenses related to Sarbanes-Oxley Section 404 compliance costs. This was due to the appreciation of our stock, which caused our market capitalization held by non-affiliate shareholders to exceed $75 million on June 30, 2006, meaning that we are an “accelerated filer” under the SEC rules. One significant requirement of being an “accelerated filer” is that we are required for 2006 to comply with all of the reporting and certification requirements relating to our internal controls over

financial reporting under Section 404 of the Sarbanes Oxley Act. In order to meet such requirements, we are required to document and test our internal controls. Please refer to management’s assessment of internal control over financial reporting for more information.

We combine the resources of our full-time engineers with several independent contractors to perform research and development projects. We invested $1,642,519 in the research and development of new products and technologies during 2006, an increase of more than 30% from the $1,208,466 invested in 2005. In 2006 and 2005, research and development costs represented approximately 4% of our revenue. We are continuing our efforts to develop and introduce new proprietary products for our Therapeutics business. Additionally, we are investing in developing proprietary component technologies for our Applied Technology business. We expect research and development costs to be approximately 5% of revenue during 2007.

We had operating income of $2,453,682, or 6% of revenue in 2006, compared to operating income of $2,049,090, or 7% of revenue in 2005. Our net income was $3,295,770, in 2006, or 8% of revenue, compared to net income of $1,905,378 in 2005, or 6% of revenue. The increase in operating and net income during 2006, as compared to 2005, is primarily related to an increase in revenue in 2006 and the resulting increase in our gross profit, which was partially offset by increased selling, general and administrative expenses, research and development costs, and the tax expense recorded in 2006. In addition to the above stated increases in operating income, net income for 2006 also includes $948,000 in pre-tax income from a patent settlement that is referred to in note 12 to the financial statements, and a reduction in income taxes from statutory rates discussed below.

We had an income tax expense of $67,795 in 2006 compared to an income tax expense of $3,595 in 2005. The effective income tax rate of less than 2% for 2006 is due to the reversal of part of our deferred tax asset valuation allowance as a result of our continued profitable operations, the expected positive results of future operations, and our assessment that it is more likely than not that the related deferred tax asset will be realized. Income tax expense for 2005 represents minimum tax payments due to the various states in which we are required to file.

The Company has federal net operating loss carryforwards totaling approximately $1,346,000 that begin to expire in 2023. The Company has state net operating loss carryforwards totaling approximately $10,425,000 that begin to expire in 2016. The Company has a federal and state charitable contribution carryforward totaling approximately $4,940,000 that is only recognizable if the Company has taxable income. This carryforward expires in 2007. Finally, the Company has federal capital loss carryforwards of approximately $5,305,000 that begin to expire in 2007. In 2006, $4,624,000 of federal capital loss carryforward expired. Under the “change of ownership” provisions of the Internal Revenue Code, utilization of the Company’s net operating loss carryforward may be subject to an annual limitation.

The Company has recorded a full valuation allowance against its charitable contribution and capital loss carryforward deferred tax assets because the Company did not consider it more likely than not that these assets would be realized based upon limitations on usage of certain of the carryforwards. A portion of the valuation allowance, $35,045, relates to the benefit from stock option exercises prior to 2006 which increases the amount of the net operating loss and tax credits carryforwards. During 2006, the Company benefited in a reduction to current taxes payable of $762,636 related to stock option exercises, which was recorded directly to additional-paid-in-capital. An additional $951,534 of tax benefits were also generated as a result of stock option exercises in 2006, but under SFAS No. 123R, such amounts are not recognized as deferred tax assets are realized (i.e. when they reduce the taxes paid). When the remaining benefit of $986,579 is used in the future, the impact will be recorded to additional-paid-in-capital rather than as a reduction of income tax expense.

At December 31, 2006, we had a backlog of approximately $4,717,000 on orders for medical devices to be manufactured for other medical technology companies, as compared to a backlog at December 31, 2005 of $8,143,000. We estimate that approximately 95% of the backlog will be shipped before December 31, 2007. As of February 28, 2007, we had a backlog of $6,223,000. Our backlog is for contract

manufacturing only and can be significantly affected by the timing of annual or semi-annual purchase orders placed by our customers. During the past year, several of our Applied Technology customers have adopted lean manufacturing philosophies, which results in the elimination of large, advance-notice purchase orders and replacement with just-in-time, frequent kanban deliveries. While more efficient for the supply chain, this can greatly reduce our backlog figures.

Our annual and quarterly operating results are affected by acceptance in the markets for our proprietary and contract manufactured products, including the volume and timing of customer orders, which vary due to (i) variation in demand for the customers’ products or services as a result of, among other things, product life cycles, competitive conditions, and general economic conditions, (ii) the customers’ attempt to balance their inventory, (iii) the customers’ need to adapt to changing regulatory conditions and requirements, and (iv) changes in the customers’ preferences or strategies. Technical difficulties and delays in the design and manufacturing processes may also affect such results. The foregoing factors may cause fluctuations in revenue and variations in product mix, which could in turn cause fluctuations in our gross margin.

Our revenue increased by approximately 28% during 2005, to $30,273,922, compared to $23,634,355 for 2004. Therapeutics products generated 56% and sales of Applied Technology contract manufactured products generated 44% of total revenue during 2005. During 2005, two customers accounted for approximately 14% and 13%, respectively, of our revenue. During 2004, one customer accounted for approximately 11% of our revenue.

Our Therapeutics division revenue increased 35% to $16,899,383 during 2005, compared to $12,488,953 in 2004. The increase in revenue over 2004 was due to an increase of 165%, in our international Therapeutics revenue largely due to Nutricia Clinical. Nutricia Clinical is our exclusive European distributor for the Flocare^® Infinity^®, a private-label version of our EnteraLite^® Infinity^®. Our domestic EnteraLite^® Infinity^® and EnteraLite⁽ portable feeding pump and disposable set revenue increased 19% over 2004. These increases were partially offset by a decrease of 14%, in sales of our stationary enteral feeding delivery products within our Therapeutics division.

Our Applied Technology division revenue increased 20% to $13,374,539 during 2005, compared to $11,145,402 in 2004. Specifically, during 2005, sensor revenue increased approximately 42%, and surgical handpiece revenue increased 12% over 2004, because our largest customers for these products posted market share gains, and substantially increased purchases of our products from which we benefited. Applied Technology engineering revenue increased 21% during 2005 compared to 2004. These increases more than offset a decrease in medical system revenue of approximately 8%.

Our gross profit as a percentage of revenue was approximately 37% for 2005, compared to 36% for 2004. We attribute this increase primarily to the different product mix delivered during 2005 and the spread of fixed overhead manufacturing costs over our increased revenue. Please refer to Note 11 of the Audited Consolidated Financial Statements for discussion of our business segments including gross profit and the Company’s definition of contribution margin.

Depreciation and amortization expenses decreased to $710,612 in 2005 from $857,731 in 2004. The decrease is primarily due to the various ages of our depreciable assets.

Selling, general and administrative expenses increased during 2005 to $8,091,996, from $7,142,513 in 2004. With our revenue gains in 2005, this increase was actually a decrease as a percentage of revenue to 27%, as compared to 30% of revenue in 2004. The dollar increase was primarily related to increases in recruiting, personnel and insurance costs.

We combine the resources of our full-time engineers with several independent contractors to perform research and development projects. We invested $1,208,466 in the research and development of new products and technologies during 2005, a decrease from the $1,430,692 invested in 2004. This decrease was a result of our launch of the EnteraLite^® Infinity^® enteral feeding pump, which consumed considerable

research and development resources in 2004. The decrease does not reflect reduced efforts to develop and introduce new proprietary products for our Therapeutics division or proprietary component technologies for our Applied Technology business.

We had operating income of $2,049,090, or 7% of revenue in 2005, compared to an operating loss of $116,227, or 0.5% of revenue in 2004. Our net income was $1,905,378, in 2005, or 6% of revenue, compared to a net loss of $178,977 in 2004, or 1% of revenue. The increase in operating and net income during 2005, as compared to 2004, is primarily related to the increase in revenue in 2005 and the resulting increase in our gross profit, which was partially offset by increased selling, general and administrative expenses.

We had income tax expense of $3,595 in 2005 compared to an income tax benefit of $31,222 in 2004. Income tax expense in 2005 represents minimum tax payments due to the various states in which we are required to file. The income tax benefit in 2004 is a result of an income tax refund partially offset by minimum tax payments due to the various states in which we are required to file. For 2005, our effective tax rate differed from the statutory rate largely as a result of taxable income generated, offset by a decrease in our valuation allowance (see below), and research and development tax credits. For 2004, our effective tax rate differed from the statutory rate largely as a result of an increase in our valuation allowance (see below), and research and development tax credits. We were able to realize a portion of the deferred tax asset related to our net operating loss carryforward in 2005, which resulted in a partial reversal of the related valuation allowance. The Company generated a net operating loss carryforward in 2005 of $396,000 as a result of employee stock option exercises. The Company established a valuation allowance against this amount, which was recorded to additional-paid-in-capital. When this valuation allowance is reversed, the impact will also be recorded to additional-paid-in-capital. The decrease in 2005 in the deferred tax valuation allowance was $612,000.

At December 31, 2005 and December 31, 2004, we had net current deferred tax assets of $0. Realization of our deferred tax assets is dependent on our ability to generate taxable income in the year the assets are realized. Under FAS 109, Accounting for Income Taxes, guidance has been issued relating to cumulative losses in recent years. Under this guidance, when there is a cumulative pretax loss for financial reporting for the current and two preceding years and a company does not have objective planning strategies designed to realize its deferred tax assets, generally no deferred tax asset should be recognized. In following this guidance management established a full valuation allowance for all deferred tax assets in 2003.

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

Cash flows provided from operating activities for 2006 were $881,586, compared to $1,854,575 for 2005. Cash flows generated during 2006 were primarily associated with the increase in net income and increases in accounts payable, accrued expenses, and non-cash stock-based compensation expense, which in turn were offset by increases in accounts receivable balances due to revenue growth increases, increases in inventories and deferred income taxes. In 2005, cash provided by operating activities was primarily associated with our net income, an increase in accounts payable and other accrued liabilities, partially offset by an increase in accounts receivable balances due to the substantial increase in revenue during the second half of the year.

Our working capital at December 31, 2006 was $12,775,041, compared to $7,850,267 at December 31, 2005. The increase in working capital is primarily related to the increase in cash and the corresponding increase in accounts receivable, inventories, and deferred income tax assets related to the valuation allowance reversal discussed above. The portion of working capital represented by cash at such dates was $2,789,276 and $1,284,218 respectively.

We maintain a line of credit arrangement with a financial institution with availability of $3 million. The line matures on May 29, 2007. We expect that we will be able to renew our line of credit in May 2007. The line of credit is collateralized by accounts receivable and inventory and bears interest at the rate of LIBOR plus 1.80%, which was 7.12% at December 31, 2006 and LIBOR plus 2.40%, which was 6.79% at December 31, 2005. We had a zero balance on this line of credit at December 31, 2006 and 2005.

On April 18, 2001, the Company entered into a Term Loan Agreement with a bank for the amount of $1,000,000. The agreement as amended, is secured by the Company’s manufacturing facility. The note is due May 15, 2008 and is being amortized over a thirteen-year term, at an interest rate of 5.4%. The outstanding balance at December 31, 2006 was $710,144, of which $59,358 is classified as current.

On October 30, 1996, the Company completed a transaction defined as “Murray City, Utah, Adjustable Rate Industrial Development Revenue Bonds, Series 1997 (ZEVEX, Inc. Project)” in the amount of $2,000,000. The bonds are secured by an irrevocable Letter of Credit issued by a bank, which is subject to expiration no later than May 30, 2008. The bonds bear interest at an adjustable rate based on the weekly tax-exempt floater rate, as determined by the remarketing agent. During 2006, the interest paid monthly ranged from 2.99% to 4.18% (APR), with an average rate for 2005 of 3.69%. The bonds mature on October 1, 2016. Principal reductions occur in the amount of $100,000 per year. The outstanding balance was $1,100,000 at December 31, 2006, of which $100,000 is classified as current.

Principal Payment due by period

Contractual Obligation

Total

Less than

1 –year

More than

1- year

More than

2- year

More than

3- year

More than

4- year

More than

5- year

Industrial

Development

Bond

$1,100,000

$100,000

$600,000

Other

Long-term debt

710,144

59,358

650,786

Total

$1,810,144

$159,358

$750,786

$100,000

$600,000

Purchases of leasehold improvements to our facilities, tooling and new engineering, production and testing equipment totaled $1,373,234 for 2006, compared to $977,316 for 2005 and $379,886 in 2004. We expect to spend approximately $1,600,000 during 2007 for additional manufacturing equipment and software, for normal replacement of aging equipment, manufacturing tooling related to our proprietary products, and improvements to our manufacturing area.

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

providers in the United States enteral pump industry and similar subpoenas were served on many of those parties. The subpoena requested documents relating to our enteral pump customers’ marketing and billing practices. We responded to the subpoena. Since October of 2001 we have not been contacted further by the OIG, although we understand the investigation is proceeding and we intend to cooperate with the investigation when contacted again. At this time we are uncertain as to any future impact this investigation will have on our operations or financial position.

We have not been, and in the near term are not expected to be, materially affected by inflation or changing prices.

In response to the SEC’s Release numbers 33-8040 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” and 33-8056, “Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations,” we have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures. Our significant accounting policies are included in Note 1 to the Audited Consolidated Financial Statements.

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

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

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

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

We have entered into an arrangement with a third party to service enternal feeding pumps for one of its European customers. We recognize revenue when the service is performed, the price is fixed or determinable and collectibility is reasonably assured.

As a general policy, collateral is not required for accounts receivable; however, we periodically monitor the need for an allowance for doubtful accounts based upon expected collections of accounts receivable, historical bad debt rates, and specific identification of uncollectible accounts. Based on these factors, we record an allowance to provide for accounts that we believe may not be ultimately collectable.

Additionally, customers’ financial condition and credit worthiness are regularly evaluated. Historically losses on collections have not been material. We also record a provision for estimated sales returns and allowances on products we have sold. These estimates are based on historical sales returns and other known factors. If the historical data we use to calculate these estimates does not properly reflect future returns, revenue could be overstated or understated. As of December 31, 2006 and 2005, we have recorded allowances for doubtful accounts and sales returns of $140,000 and $130,000, approximately 1.8% and 2.3% respectively of gross accounts receivable.

Rapid change and technological innovation characterize the marketplace for medical products. As a result, we and our customers are subject to the risk of product and inventory obsolescence, whether from prolonged development, government approval cycles, or the development of improved products or processes by competitors. In addition, the marketplace could conclude that the task for which a customer’s medical product was designed is no longer an element of a generally accepted diagnostic or treatment regimen. Accordingly, we write down inventory that we believe is excess or obsolete. Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method. As of December 31, 2006 and 2005, we have recorded an excess and obsolete reserve of $300,000 and $284,000, which is approximately 5.2% and 5.8%, respectively of gross inventories.

We record a provision for estimated warranty reserve on products we have sold. These estimates are based on historical warranty expenses and other known factors. If the historical data we use to calculate these estimates does not properly reflect future warranty expenses, expenses could be understated or overstated. We have recorded a warranty expense allowance in the amount of $159,000 as of December 31, 2006 and $152,000 as of December 31, 2005.

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

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

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

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

discounted cash flows, using a discount rate determined by management to be commensurate with the risk inherent in our current business model.

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

Net intangible assets and goodwill amounted to approximately $4.4 million as of December 31, 2006. Net fixed assets amounted to approximately $4.7 million as of December 31, 2006.

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

The Company recognizes compensation expense equal to the grant date fair value of stock based awards for all awards expected to vest, over the period during which the related service is rendered by the grantee. The fair value of the stock based awards is determined primarily using Black-Scholes option pricing model, which is the same valuation model used previously in valuing stock options for pro forma footnote disclosures under the requirements of SFAS 123. Prior to September 2005, the Company used the “graded vesting” or accelerated method to value awards and to allocate those values over the requisite service periods. The Company estimated forfeiture rates are based on historical data and ranged from 5.4% to 8.6% for 2006. At December 31, 2006, the estimated forfeiture rate for unvested awards is 8.6% per year.

As of December 31, 2006, unrecognized compensation expense totaling $1,117,000 was related to stock based compensation under Employee Stock Plans. This unrecognized compensation expense is expected to be recognized over a weighted average period of 2.6 years.

Through December 31, 2005, the Company elected to follow the intrinsic value method under Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations (FIN No. 44) in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation. During 2006 and 2005, the Company recognized $61,762 and $33,688, respectively, in stock-based compensation for stock issued for the performance of services. During 2004, no stock-based compensation expense was recognized by the Company.

Income taxes are recorded based on the liability method, which requires recognition of deferred tax assets and liabilities based on the difference between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded to reduce our deferred tax asset to an amount that is more likely than not to

be realized, as determined based on our analyses of projected taxable income, including tax strategies available to generate future taxable income. Our analyses of future taxable income are subject to a wide range of variables, many of which involve our estimates, and therefore our deferred tax asset may not be ultimately realized. As of December 31, 2006, we have recorded a full valuation allowance against our federal and state charitable contribution carryforward and federal capital loss carryforward deferred tax assets because we did not consider it more likely than not that these assets would be realized based upon limitations on usage of certain of the carryforwards. A portion of the valuation allowance related to the benefit for stock option exercise increases the amount of the net operating loss carryforward. When this benefit is used in the future the impact will be recorded to additional-paid-in-capital rather than a reduction in income tax expense.

In June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FAS 109, “Accounting for Income Taxes” (“FIN 48”) to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of January 1, 2007. The Company is continuing to evaluate the effect, if any, the adoption of FIN 48 will have on the financial position and results of operations, but does not expect the adoption to have a material effect.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact that SFAS 157 may have on its consolidated financial position, results of operations or cash flows.

We have reviewed all other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on our results of operations or financial position. Based on that review, we do not currently believe that any of these other recent accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.

The following table sets forth a summary of our quarterly income statement data for the fiscal years ended December 31, 2006 and 2005.

	12/06	9/06	6/06	3/06	12/05	9/05	6/05	3/05
Revenue	$ 10,285,037	$10,442,480	$10,475,816	$10,593,157	$ 9,354,882	$8,137,223	$6,797,653	$5,984,164
Gross profit	3,117,754	3,509,814	3,690,731	3,748,685	3,614,200	3,080,362	2,468,485	2,186,505
Net income (loss)	(84,136)	418,532	1,483,987	1,477,387	906,274	785,483	168,468	45,153
EPS basic	(.01)	.07	.26	.27	.18	.15	.03	.01
EPS diluted	(.01)	.07	.24	.24	.16	.15	.03	.01

We are exposed to market risk in the form of fluctuations in interest rates and their potential impact upon our line of credit, currently with a zero balance and our industrial development bond of $1,100,000. Principal payments of $100,000 are made annually on the industrial development bond, with the balance due October 1, 2016. The variable rate on the line of credit is LIBOR plus 1.80%, which was 7.12% at

December 31, 2006, and the variable rate on the industrial development bond is based on a weekly tax-exempt floater rate. The line of credit matures annually in May. At December 31, 2006, the above debt represented 63% of our total short-term funded debt and 61% of our total long-term funded debt compared with 64% short-term funded debt and 61% long-term funded debt at December 31, 2005. For illustrative purposes only, the impact of market risk is estimated using a hypothetical increase in interest rates of one percentage point for both our variable rate debt and cash. Based on hypothetical assumption, we would have incurred an additional $19,000 in interest expense and received $23,000 in additional interest income for the year ended December 31, 2006, we would have incurred an additional $25,000 in interest expense and received $6,000 in additional interest income for the year ended December 31, 2005, and an additional $22,000 in interest expense and received $6,000 in additional interest income for the year ended December 31, 2004.

We are also exposed to market risk in the form of fluctuations in interest rates and their potential impact on our fixed rate debt, which includes our term loan agreement, with a balance of $710,144 as of December 31, 2006, which is due on May 15, 2008 and is being amortized over a thirteen-year term at an interest rate of 5.4%.

Additionally, we held marketable equity securities with a fair value of $20,250 at December 31, 2005, consisting of stock of a public company in the small-cap market. Gross unrealized losses on marketable equity securities were $0 for the year ended December 31, 2005. Gross unrealized losses on marketable equity securities were $18,525 for the year ended December 31, 2004.

The following consolidated financial statements of ZEVEX are included beginning at page 46, immediately following Item 15:

Consolidated Statements of Operations for the years ended December 31, 2006, 2005, and 2004

Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended

All schedules are omitted because they are not applicable or the required information is shown in the

We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to record, process, summarize and disclose this information within the time periods specified by the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers conclude that these controls and procedures are effective to ensure that we are able to record, process, summarize and report the information we are required to disclose in the reports we file with the SEC within the required time periods.

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of management, including the Chief Executive and Chief Financial Officers, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment under the framework in Internal Control over Financial Reporting – Guidance for Smaller Companies, we concluded that our internal control over financial reporting was effective as of December 31, 2006. Our assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, the independent registered public accounting firm which also audited our consolidated financial statements included in our annual reports on Form 10-K, as stated in their report which appears below.

During the quarter ended December 31, 2006, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have audited management’s assessment, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting” of Item 9A of ZEVEX International, Inc’s Form 10-K, that ZEVEX International, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). ZEVEX International, Inc.’s 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 is to 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 to obtain 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’s assessment, 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 our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of 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, in reasonable 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 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 detection of 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 future periods 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 ZEVEX International, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, ZEVEX International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2006 consolidated financial statements of ZEVEX International, Inc. and our report dated March 13, 2007 expressed an unqualified opinion thereon.

Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after registrant’s fiscal year end December 31, 2006 are incorporated by reference into Part III of this report.

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

During 2006 and 2005, Ernst & Young LLP examined the accounts of ZEVEX and its subsidiaries and also provided other audit services to us in connection with Securities and Exchange Commission filings. A summary of these fees is set forth in the following table.

In accordance with our Audit Committee Charter, the Audit Committee approves in advance any and all audit services, including audit engagement fees and terms, and non-audit services provided to us by our independent auditors (subject to the de minimus exception for non-audit services contained in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended), all as required by applicable law or listing standards. The independent auditors and our management are required to periodically report to the Audit Committee the extent of services provided by the independent auditors and the fees associated with these services.

In the Charter of the Audit Committee, as amended April 1, 2004, the Audit Committee has the sole authority to approve the audit and non-audit services of the auditors. For 2006 and 2005, the Audit Committee has approved all audit and non-audit services by the auditors.

The following consolidated balance sheets of ZEVEX International, Inc. as of December 31, 2006 and

2005, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2006, are filed as part of this report:

A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.

On November 1, 2006, a Form 8-K was filed to disclose information regarding future projections that was disclosed on the Company’s third quarter conference call.

On January 12, 2007, a Form 8-K was filed to disclose that the Company had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Moog Inc., a New York corporation (“Moog”), and Pumpco Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Moog (“Merger Sub”).

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Know all men by these presents, that each person whose signature appears below constitutes and appoints each of David J. McNally and Phillip L. McStotts, jointly and severally, his true and lawful attorney in fact and agent, with full power of substitution for him and in his name, place and stead, in any and all capacities to sign any or all amendments to this report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney in fact or his substitute or substitutes may do or cause to be done by virtue hereof.

(1) Incorporated by reference to Amendment No. 1 on Registration Statement on Form S-1 filed October 24, 1997 (File No. 333-37189).

(2) Incorporated by reference to Registration Statement on Form S-1 filed October 3, 1997 (File No. 001-12965).

(3) Incorporated by reference to ZEVEX’s amended Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 033-19583).

(4) Incorporated by reference to ZEVEX’s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 001-12965).

(5) Incorporated by reference to ZEVEX’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-12965).

(6) Incorporated by reference to ZEVEX’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-12965).

(7) Incorporated by reference to ZEVEX’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-12965).

(8) Incorporated by reference to ZEVEX’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-12965).

(9) Incorporated by reference to ZEVEX’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 001-12965).

(10) Incorporated by reference to ZEVEX’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (File No. 001-12965).

(11) Incorporated by reference to ZEVEX’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 001-12965).

(12) Incorporated by reference to ZEVEX’s Report on Form 8-K filed January 12, 2007 (File No. 001-12965).

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

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

4. The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

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

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

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

(i) The accompanying annual report on Form 10-K for the fiscal year ended December 31, 2006, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

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

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

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

We have audited the accompanying consolidated balance sheets of ZEVEX International, Inc. as of December 31, 2006 and 2005 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ZEVEX International, Inc. at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 1 and 9 to the financial statements, effective January 1, 2006, the Company changed its method of accounting for share-based compensation, as a result of its adoption of SFAS No. 123(R), “Share-Based Payment”.

We have also audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ZEVEX International, Inc.'s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Controls-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2007 expressed an unqualified opinion thereon.

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS

	December 31,	December 31,
ASSETS	2006	2005
Current assets
Cash and cash equivalents	$ 2,789,276	$ 1,284,218
Designated cash for sinking fund payment on industrial
development bond	91,174	89,037
Accounts receivable, net of allowance for doubtful
accounts of $140,000 in 2006 and $130,000 in 2005	7,934,443	5,641,229
Inventories	5,784,358	4,586,418
Deferred tax assets - current	460,790	-
Prepaid expenses and other current assets	636,423	213,612
Total current assets	17,696,464	11,814,514

Property and equipment, net	4,673,347	4,639,136
Patents and trademarks, net	335,951	348,467
Goodwill, net	4,048,264	4,048,264
Deferred tax assets - non-current	237,337	-
Total assets	$ 26,991,363	$ 20,850,381

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$ 3,130,356	$ 2,462,071
Other accrued liabilities	1,629,118	1,290,911
Deferred revenue	-	52,081
Current portion of industrial development bond	100,000	100,000
Income taxes payable	2,591	2,965
Current portion of other long-term debt	59,358	56,219
Total current liabilities	4,921,423	3,964,247

Industrial development bond	1,000,000	1,100,000
Other long-term debt	650,786	710,143

Stockholders' equity
Common stock; $.001 par value, 22,000,000
authorized shares, 5,714,387 issued and 5,655,685
outstanding at December 31, 2006 and 5,349,890
issued and 5,291,040 outstanding at December 31, 2005	5,714	5,350
Additional paid in capital	18,768,158	16,719,396
Treasury stock, 58,702 shares (at cost) at December 31, 2006
and 58,850 shares (at cost) at December 31, 2005	(89,085)	(89,422)
Retained earnings (accumulated deficit)	1,734,367	(1,559,333)
Total stockholders' equity	20,419,154	15,075,991

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31
	2006	2005	2004
Revenue:
Product sales	$ 40,795,083	$ 29,721,595	$ 22,968,163
Engineering services	1,001,407	552,327	666,192
Total revenue	41,796,490	30,273,922	23,634,355

Cost of sales	27,729,506	18,924,370	15,177,377
Gross profit	14,066,984	11,349,552	8,456,978

Operating expenses:
General and administrative	5,719,770	4,637,307	3,853,514
Selling and marketing	4,219,940	3,454,689	3,288,999
Research and development	1,642,519	1,208,466	1,430,692
Asset impairment	31,073	-	-
Total operating expenses	11,613,302	9,300,462	8,573,205

Operating income (loss)	2,453,682	2,049,090	(116,227)

Other income (expense):
Interest and other income	105,717	11,720	22,209
Interest expense	(134,594)	(151,837)	(142,042)
Patent infringement settlement	947,760	-	-
(Loss) gain on sale of securities	(9,000)	-	25,861
Income (loss) before income taxes	3,363,565	1,908,973	(210,199)

(Provision) benefit for income taxes	(67,795)	(3,595)	31,222

Net income (loss)	$ 3,295,770	$ 1,905,378	$ (178,977)


Basic net income (loss) per share	$ 0.59	$ 0.37	$ (0.04)

Weighted average shares outstanding	5,539,588	5,125,242	5,101,446

Diluted net income (loss) per share	$ 0.54	$ 0.35	$ (0.04)

Diluted weighted average shares outstanding	6,149,925	5,512,811	5,101,446

ZEVEX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
					Retained	Unrealized
			Additional		Earnings/	(Loss) Gain on
	Common Stock		Paid-in	Treasury	(Accumulated	Available-for-sale
	Shares	Amount	Capital	Stock	Deficit)	Securities	Total
Balances at January 1, 2004	5,160,296	$ 5,160	$ 16,290,452	$ (89,422)	$ (3,285,675)	$ 3,067	$ 12,923,582
Comprehensive loss:
Net loss	--	--	--	--	(178,977)	--	(178,977)
Other comprehensive income, net of tax:
Change in unrealized loss on available-for-sale securities	--	--	--	--	--	(21,592)	(21,592)
Total comprehensive loss							(200,569)
Balances at December 31, 2004	5,160,296	5,160	16,290,452	(89,422)	(3,464,652)	(18,525)	12,723,013
Comprehensive income:
Net income	--	--	--	--	1,905,378	--	1,905,378
Other comprehensive income, net of tax:
Change in unrealized loss on available-for-sale securities	--	--	--	--	--	18,525	18,525
Total comprehensive income							1,923,903
Exercise of stock options for cash	177,000	177	387,455	--	(59)	--	387,573
Issuance of stock for services	12,594	13	41,489	--	--	--	41,502
Balances at December 31, 2005	5,349,890	5,350	16,719,396	(89,422)	(1,559,333)	--	15,075,991
Net income	--	--	--	--	3,295,770	--	3,295,770
Exercise of stock options for cash	357,750	358	806,929	--	--	--	807,287
Tax benefit from stock option exercises	--	--	762,636	--	--	--	762,636
Issuance of fractional shares in stock split	42	--	1,629	337	(2,070)	--	(104)
Stock-based compensation expense	--	--	415,812	--	--	--	415,812
Issuance of stock for services	6,705	6	61,756	--	--	--	61,762
Balances at December 31, 2006	5,714,387	$ 5,714	$ 18,768,158	$ (89,085)	$ 1,734,367	$ -	$ 20,419,154

ZEVEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31
	2006	2005	2004
Cash flows from operating activities
Net income (loss)	$ 3,295,770	$ 1,905,378	$ (178,977)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization	756,934	710,612	857,731
Asset (and other than temporary) impairment	31,073	27,525	-
(Gain) loss on disposal of asset	(8,323)	514	-
Non-cash stock-based compensation expense	415,812	-	-
Stock issued for services	61,762	41,498	-
Provision for bad debts	7,817	13,696	6,521
Deferred income taxes	(698,127)	-	-
Realized loss (gain) on marketable securities	9,000	-	(3,361)
Changes in operating assets and liabilities
Designated cash for sinking fund payment
on industrial development bond	(2,137)	7,005	(765)
Accounts receivable	(2,301,031)	(2,091,489)	260,384
Inventories	(1,197,940)	(1,663)	(470,188)
Prepaid expenses and other assets	(443,061)	(8,172)	29,006
Accounts payable	668,285	512,453	408,918
Accrued and other liabilities	338,207	684,177	81,663
Deferred revenue	(52,081)	52,081	(426,067)
Income taxes receivable/payable	(374)	960	444,553
Net cash provided by operating activities	881,586	1,854,575	1,009,418
Cash flows from investing activities
Purchase of property and equipment	(1,373,234)	(977,316)	(379,886)
Additions of patents and trademarks	(16,468)	(40,227)	(29,634)
Proceeds from sale of land	588,323	-	-
Proceeds from other receivable from sale of business	-	-	988,703
Redemption of available-for-sale marketable securities	11,250	-	40,519
Net cash (used in) provided by investing activities	(790,129)	(1,017,543)	619,702
Cash flows from financing activities
Principal payments on capital lease and long-term debt	(56,218)	(53,246)	(173,380)
Payment on industrial development bond	(100,000)	(100,000)	(100,000)
Net (payments on) proceeds from bank line of credit	-	-	(1,810,970)
Income tax benefit from exercise of stock options	762,636	-	-
Proceeds from exercise of stock options	807,183	387,573	-
Net cash provided by (used in) financing activities	1,413,601	234,327	(2,084,350)

1. Description of Organization and Business and Summary of Significant Accounting Policies

The Company was incorporated under the laws of the State of Nevada on December 30, 1987. The Company was originally incorporated as Downey Industries, Inc. and changed its name to ZEVEX International, Inc. on August 15, 1988. In November 1997, the Company reincorporated in Delaware.

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

The consolidated financial statements for 2006 include the accounts of ZEVEX International, Inc. (the Company) and its wholly owned operating subsidiary ZEVEX, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with U.S. generally accepted accounting policies requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.

The Company recognizes revenue from products sold directly to end customers when persuasive evidence of an arrangement exists, the price is fixed or determinable, shipment is made and title has passed, and collectibility is reasonably assured. If such criteria are not met, revenue is deferred. As of December 31, 2006, 2005, and 2004, the Company had expensed as incurred shipping and handling costs, of $756,000, $531,000, and $490,000 respectively, which are included in selling and marketing.

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

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

The Company has entered into an arrangement with a third party to service enternal feeding pumps for one of its European customers. The Company recognizes revenue when the service is performed, the price is fixed or determinable and collectibility is reasonably assured.

The Company considers all certificates of deposit and highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents.

1. Description of Organization and Business and Summary of Significant Accounting Policies (continued)

The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, trade accounts receivable and certain debt issuances (see Note 7). Cash and cash equivalents are held in federally insured financial institutions or invested in high-grade, short-term commercial paper issued by major United States corporations. Marketable securities consist principally of corporate stocks. The Company sells its products primarily to, and has trade receivables with, independent durable medical equipment manufacturers and dealers in the United States and abroad. During 2006, two customers accounted for approximately 31% and 10% of revenue, respectively, and 51% of the accounts receivable balance at December 31, 2006. During 2005, two customers accounted for approximately 14% and 13% of revenue, respectively, and 43% of the accounts receivable balance at December 31, 2005. During 2004, one customer accounted for approximately 11% of revenue.

During the 2006 fiscal year, the Company generated total revenue of $41,796,490, of which $16,926,316 (40%) was considered foreign source revenue. During the 2005 fiscal year, the Company generated total revenue of $30,273,922, of which $6,805,033 (22%) was considered foreign source revenue. During the 2004 fiscal year, the Company had total revenue of $23,634,355, of which $3,168,587 (13%) was considered foreign source revenue.

As a general policy, collateral is not required for accounts receivable; however, the Company periodically monitors the need for and records an allowance for doubtful accounts based upon expected collections of accounts receivable, historical bad debt rates, and specific identification of uncollectible accounts. Additionally, customers’ financial condition and creditworthiness are regularly evaluated. Historically losses on collection have not been material.

Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method. The Company reviews inventory for indicators that its inventory exceeds its market value or that inventory quantities exceed amounts ultimately expected to be used or sold and writes down inventory as deemed necessary. As of December 31, 2006 and 2005, the Company had recorded an excess and obsolete reserve of approximately $300,000 and $284,000 respectively.

The Company records a provision for estimated sales returns and allowances and warranty reserve on products it has sold. These estimates are based on historical sales returns and warranty expenses and other known factors.

As of December31, 2006, the Company had no marketable securities. As of December 31, 2005, the Company’s marketable securities consisted of equity securities classified as available-for-sale. Such securities are carried at their fair value based upon their quoted market prices at December 31, 2005.

Unrealized gains and losses on available-for-sale securities are reported, net of tax, in a separate component

Realized gains and losses and declines in value, judged to be other-than-temporary on available-for-sale securities are included in interest and other income. The cost of securities sold is based on the specific-identification method. Interest and dividends on securities classified as available-for-sale are included in other income.

1. Description of Organization and Business and Summary of Significant Accounting Policies (continued)

In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, Staff Accounting Bulletin No. 59, Accounting for Noncurrent Marketable Equity Securities, and EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Instruments”, in 2005, the Company recorded an other-than-temporary impairment loss on its available-for-sale securities of $27,525, which is reflected as a component of net income for the year ended December 31, 2005. This writedown represents the amount of the unrealized loss as of the date of the writedown on the Company’s available-for-sale marketable securities that had previously been recorded in equity as part of other comprehensive income.

Property and equipment are stated at cost less accumulated depreciation. If the Company determines that an impairment of its property and equipment exists, such property and equipment is written down to its fair value. Depreciation is computed over expected useful lives of three to twenty-five years using the straight-line method.

Major replacements and refurbishment costs, which extend the useful lives of equipment, are capitalized and depreciated over the remaining useful life. Normal maintenance and repairs are expensed as incurred.

The costs of acquired and internally developed patents, trademarks, and other intangibles are amortized over the estimated fifteen year useful life of the intangible asset on a straight-line basis. At December 31, 2006 and 2005, accumulated amortization related to patents, trademarks, and other intangibles was $199,047 and $170,063, respectively. The Company periodically reviews the recoverability of its intangible assets and where impairment in value has occurred, such intangibles are written down to net realizable value.

As of December 31, 2006 and 2005, the Company’s gross goodwill balance was $4,568,577 with accumulated amortization of $520,313.

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

1. Description of Organization and Business and Summary of Significant Accounting Policies (continued)

The Company assesses, on an ongoing basis, the recoverability of long-lived assets, comparing estimates of future undiscounted cash flows to net book value. If future undiscounted cash flow estimates are less than net book value, net book value would be reduced to fair value based on estimates of discounted cash flows. The Company also evaluates amortization periods of assets, including intangible assets other than goodwill, to determine if events or circumstances warrant revised estimates of useful lives.

The Company provides for income taxes based on the liability method, which requires recognition of deferred tax assets and liabilities based on the differences between financial reporting and tax bases of assets and liabilities measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance has been established to reduce deferred tax assets to the amount that the Company believes will be more likely than not to be realized (see Note 6).

On May 19, 2006, the Company effected a 3-for-2 stock split in the form of a 50% stock dividend. The dividend entitled all shareholders of record date of May 4, 2006 to receive one additional common share for every two common shares held. 148 shares of Treasury Stock and 42 shares of Common stock were used to adjust for fractional shares related to the dividend. The capital stock accounts, all share data and earnings per share data give effect to the stock split, applied retrospectively, to all periods presented.

which is the same valuation model used previously in valuing stock options for pro forma footnote disclosures under the requirements of SFAS 123. Prior to September 2005, the Company used the “graded vesting” or accelerated method to value awards and to allocate those values over the requisite service periods. The Company estimated forfeiture rates are based on historical data and ranged from 5.4% to 8.6% for 2006. At December 31, 2006, the estimated forfeiture rate for unvested awards is 8.6% per year.

1. Description of Organization and Business and Summary of Significant Accounting Policies (continued)

Compensation. During 2006 and 2005, the Company recognized $61,762 and $33,688, respectively, in stock-based compensation for stock issued for the performance of services. During 2004, no stock-based compensation expense was recognized by the Company.

Had compensation expense for options under the Company’s two stock-based compensation plans been determined based on the fair value of the option at the grant dates for awards under those plans consistent with SFAS 123, the Company’s net income (loss) and earnings (loss) per share for years prior to the adoption of SFAS No. 123R would have been adjusted to the pro forma amounts for the years ended December 31, as indicated below:

The fair value of the Company’s options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2006, 2005, and 2004, respectively, for options where the stock price equals the exercise price: risk-free interest rate of 4.9%, 4.2%, and 3.3%; dividend yield of 0%; volatility factors of the expected market price of the Company’s common stock of .79, .74, and .73; and a weighted-average expected life of the option of 3.5, 3.3, and 3.5 years. The estimated weighted-average fair values of options granted in the years ended December 31, 2006, 2005, and 2004 were $7.11, $4.73, and $2.30, respectively.

FAS 123R requires the use of the expected term rather than the contractual term of the employee stock option. Contractual terms of the stock options range from 5 to 10 years from grant date (5 years for new options). ZEVEX has adopted the “shortcut approach” on plain vanilla employee stock options as allowed under SAB 107. Under this approach, the expected term would be presumed to be the mid-point between

the vesting date and the end of the contractual term. Assuming a 5-year contractual term and straight-line vesting over 3-years, the “shortcut approach” produces a 3.5 year expected life.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized on a straight-line basis over the options’ vesting period. Because the effect of SFAS No. 123 is prospective, the initial impact on pro forma net income (loss) may not be representative of compensation expense in future years.

1. Description of Organization and Business and Summary of Significant Accounting Policies (continued)

Advertising costs are expensed as incurred. Advertising expenses were $50,713, $69,759, and $40,450, respectively, for the years ended December 31, 2006, 2005, and 2004.

We have reviewed all other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial position of the Company. Based on that review, the Company does not currently believe that any of these other recent accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.

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

Diluted net income (loss) per common share includes the dilutive effect of options in the weighted-average number of the Company’s common shares outstanding, as calculated using the treasury stock method.

Net income (loss), as presented on the consolidated statements of operations, represents the numerator used in calculating basic and diluted net income (loss) per common share. The following table sets forth the computation of the shares used in determining basic and diluted net income (loss) per common share for the years ended December 31. All shares outstanding data give effect to the stock split, applied retrospectively, to all periods presented.

1. Description of Organization and Business and Summary of Significant Accounting Policies (continued)

Options to purchase approximately 15,000, 171,750, and 1,304,250, shares of common stock were outstanding at December 31, 2006, 2005, and 2004, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

As discussed in Note 1 above, an other-than-temporary impairment loss of $27,525 on available-for-sale marketable securities was recognized during 2005.

Enteral feeding pumps represent acquired and self-constructed pumps that are placed with businesses and other users (at little or no cost to the users) under arrangements in which the pump users have an obligation to buy disposable products from the Company while they are using the pumps. To the extent that the users discontinue purchase of the disposables, the pumps are generally returned to the Company.

Depreciation and amortization expense (including software amortization expense) for property and equipment for the years ended December 31, 2006, 2005, and 2004 amounted to $727,950, $683,608, and $833,064, respectively. Assets that are fully depreciated including machinery and equipment, furniture and fixtures, tooling, and software, some of which are still in use by the Company, have been excluded from the table above.

Deferred tax assets and liabilities are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current, depending on the periods in which the temporary differences are expected to reverse.

Significant components of the Company’s deferred income taxes as of December 31 are as follows:

The Company has recorded a full valuation allowance against its charitable contribution and capital loss carryforward deferred tax assets because the Company did not consider it more likely than not that these assets would be realized based upon limitations on usage of certain of the carryforwards. A portion of the valuation allowance, $35,045, relates to the benefit from stock option exercises prior to 2006 which increases the amount of the net operating loss and tax credits carryforwards. During 2006, the Company benefited in a reduction to current taxes payable of $762,637 related to stock option exercises, which was recorded directly to additional-paid-in-capital. An additional $951,534 of tax benefits were also generated as a result of stock option exercises in 2006, but under SFAS No. 123R, such amounts are not recognized as deferred tax assets are realized (i.e. when they reduce the taxes paid). When the remaining benefit of $986,579 is used in the future, the impact will be recorded to additional-paid-in-capital rather than a reduction in income tax expense.

The actual tax benefit (expense) differs from the 34% federal statutory rate as follows:

The Company maintains a line of credit arrangement with a financial institution with availability of $3 million. The line matures on May 29, 2007. The Company expects that it will be able to renew its line of credit in May 2007. The line of credit is collateralized by accounts receivable and inventory and bears interest at the rate of LIBOR plus 1.80%, which was 7.12% at December 31, 2006 and LIBOR plus 2.40%, which was 6.79% at December 31, 2005. The Company had a zero balance on this line of credit at December 31, 2006 and 2005. Under the line of credit agreement, the Company is restricted from declaring cash dividends and must maintain certain levels of working capital and meet certain other financial covenants. The Company was in compliance with such covenants as of December 31, 2006.

Principal Payment due by period

Contractual Obligation

Total

Less than

1 –year

More than

1- year

More than

2- year

More than

3- year

More than

4- year

More than

5- year

Industrial

Development

Bond

$1,100,000

$100,000

$600,000

Other

Long-term debt

710,144

59,358

650,786

–

Total

$1,810,144

$159,358

$750,786

$100,000

$600,000

The Company maintains a qualified 401(k) profit sharing plan covering substantially all employees. Eligible employees may defer a portion of their salary. At the discretion of the Board of Directors, the Company may make a contribution of up to four percent (4%) of the eligible employees’ salaries and an additional discretionary amount to be determined each year by the Board of Directors. Employees are fully vested in the employer contributions after six years. Contributions to the plan for the years ended December 31, 2006, 2005, and 2004 were $186,061, $149,065, and $128,202, respectively.

The Company is authorized to issue 2,000,000 shares of $.001 par value preferred stock. None of the preferred stock was issued or outstanding at December 31, 2006 or 2005.

At December 31, 2006, the Company had reserved 2,132,730 shares of common stock for future issuance under the Company’s stock option plans.

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

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

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

During 2006, the Board of Directors established the 2006 Equity Incentive Plan (the “2006 Plan”), which was ratified by shareholders in May 2006. The 2006 Plan authorized 1,000,000 shares of common stock for issuance, subject to adjustment for such matters as stock splits and stock dividends. The 2006 Plan provides for the grant of restricted stock, restricted stock units, incentive stock options, stock appreciation rights, and stock awards to eligible participants and may be administered by the Board of Directors or by the Compensation Committee. During 2006, 57,400 restricted stock units (RSU) were granted under the 2006 Plan. The restricted stock has a four year vesting period, during which the recipient must remain employed with the Company. The average fair value of the stock on the date of grants made during 2006 was $9.86 per share.

A summary of stock option activity for both plans, and related information for the year ended December 31, 2004, 2005 and 2006, follows:

	Shares	Outstanding Stock Options		Restricted Stock Units		Average	Aggregate
	Available for Grant	Number of Shares	Price Per Share	Number of Shares	Ave. Price Per Share	Exercise Price	Intrinsic Value

Balance at January 1, 2004	647,354	1,039,425	$ 1.27 – 3.33	–	–	$ 2.57	$ 397,250
Options granted	(666,000)	666,000	2.20 – 2.87	–	–	$ 2.48	–
Options exercised	–	–	–	–	–	–	–
Options forfeited/cancelled	401,175	(401,175)	1.27 – 3.33	–	–	2.74	38,100
Balance at Dec. 31, 2004	382,529	1,304,250	1.27 – 3.33	–	–	2.47	620,800
Options/shares granted	(367,344)	367,344	2.40 – 8.55	–	–	5.46	–
Options exercised	--	(189,594)	1.27 – 3.17	–	–	2.21	1,061,958

Options forfeited/cancelled	30,000	(30,000)	1.98 – 2.70	–	–	2.63	17,003
Balance at Dec. 31, 2005	45,185	1,452,000	$ 1.27 – 8.55	–	–	$ 3.26	$7,060,138
Additional authorization	1,000,000	–	–	–	–	–	–
Options/shares granted	(50,205)	50,205	2.40 – 13.13	–	–	10.01	–
RSU granted	(57,400)	–	–	57,400	$ 9.86	–	–
Options exercised	--	(364,455)	1.27 – 7.93	–	–	2.32	3,690,772
Options forfeited/cancelled	93,750	(93,750)	2.23 – 8.55	–	–	3.03	625,483
Balance at Dec. 31, 2006	1,031,330	1,044,000	$1.44 – 13.13	57,400	$ 9.86	$ 3.94	$6,223,130

Vested at Dec. 31, 2006		844,320	$ 1.44 – 8.55	–	–	$ 3.38	$5,467,862
Vested and expected to vest		1,029,000	$ 1.44 – 9.46	57,400	$ 9.86	$ 4.11	$6,800,414

Additionally, SFAS No. 123R requires that companies with wide ranges between the high and low exercise prices of its stock options segregate the exercise prices into ranges that are meaningful for assessing the timing and number of additional shares that may be issued and the cash that may be received as a result of the option exercises.

Below is option information based on segregated ranges of exercise prices as of December 31, 2006:

On December 14, 2005, the Company accelerated vesting of all unvested options to purchase shares of common stock that were held by current employees and directors that were unvested and granted prior to June 1, 2004, which have an exercise price per share ranging from $1.26 to $3.33. Also, on December 14, 2005, the Company issued options to all independent directors to purchase shares of common stock that were immediately vested, which have an exercise price per share of $8.55. Options to purchase approximately 530,063 shares of common stock were subject to this acceleration and the immediate vesting. The exercise prices and number of shares subject to the accelerated options and the immediate vesting were unchanged. The acceleration and the immediate vesting was effective December 14, 2005. The acceleration and the immediate vesting of these options was undertaken to eliminate the future compensation expense of approximately $617,000 that the Company would have otherwise recognized under SFAS 123R in its future consolidated statements of operations. By the accelerating and the immediate vesting of these options, the $617,000 is included in the pro-forma disclosure of stock-based compensation (Note 1). However, during 2006 the Company realized an expense of approximately $64,000 related to employees that terminated their employment before the accelerated options would have originally vested.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values.

Marketable securities: The Company determines fair values based on quoted market prices.

Bank line of credit, convertible debt, industrial development bond, other long-term debt and capital leases: The fair values of the Company’s bank line of credit and long-term debt and leases are estimated using discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of the Company’s financial instruments are as follows at

	2006		2005
	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Cash and cash equivalents	$ 2,789,276	$ 2,789,276	$ 1,284,218	$ 1,284,218
Accounts receivable	7,934,443	7,934,443	5,641,229	5,641,229
Marketable securities	--	--	20,250	20,250
Accounts payable	3,130,356	3,130,356	2,462,071	2,462,071
Industrial development bond	1,100,000	1,100,000	1,200,000	1,200,000
Other long-term debt	710,144	697,297	766,362	749,066

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

Segment information for the year ended December 31, 2006 (in thousands) is as follows:

Included in the segment assets disclosed above are specifically identified fixed assets and goodwill. All assets other than those specifically identified fixed assets and goodwill are included in Corporate and Unallocated. The only specifically identified fixed assets include nutritional pumps and tooling, which are included in the Therapeutics segment. All other fixed assets are used jointly by the segments. Goodwill represents approximately $4,048,000 in Applied Technology. The above segments include stock-based compensation of approximately $416,000, allocated to Therapeutics in the amount of $101,000, Applied Technology in the amount of $107,000, and Corporate and Unallocated in the amount of $208,000. No compensation costs were capitalized.

Segment information for the year ended December 31, 2005 (in thousands) is as follows:

	Therapeutics	Applied Technology	Corporate and Unallocated	Total
Revenue	$ 16,899	$ 13,375	$ --	$ 30,274
Cost of sales	10,911	8,013	--	18,924
Gross profit	5,988	5,362	--	11,350
Selling and marketing	2,829	626	--	3,455
Research and development	785	424	--	1,209
Contribution margin	2,374	4,312	--	6,686
General and administrative	--	--	4,637	4,637
Other (income)/expense	--	--	140	140
Provision for income taxes	--	--	4	4
Net income				$ 1,905

Total assets	$ 135	$ 4,048	$ 16,667	$ 20,850

Segment information for the year ended December 31, 2004 (in thousands) is as follows:

Product	2006	2005	2004
Therapeutics	66.1%	55.8%	52.8%
Ultrasonic and Optoelectronic Sensors	17.4%	22.0%	19.7%
Ultrasonic Surgical Devices	9.9%	12.3%	14.2%
Medical Systems	4.3%	8.5%	11.7%
Design and Engineering Services	2.3%	1.4%	1.6%

	2006		2005
	High	Low	High	Low
1^st Quarter	12.59	7.77	2.98	2.35
2^nd Quarter	16.48	7.00	3.00	2.07
3^rd Quarter	19.70	8.19	3.41	2.37
4^th Quarter	10.78	7.50	9.66	3.15

Service provided	2006	2005
Audit fees	$306,754	$144,654
Audit-related fees	7,800	3,375
Tax fees	0	0
All other fees	13,443	0

Net increase (decrease) in cash and cash equivalents	1,505,058	1,071,359	(455,230)
Cash and cash equivalents at beginning of period	1,284,218	212,859	668,089
Cash and cash equivalents at end of period	$ 2,789,276	$ 1,284,218	$ 212,859

	2005	2004
Net income (loss) as reported	$ 1,905,378	$ (178,977)
Less: Stock compensation expense determined under fair value method, net of related tax effects	1,114,901	599,040
Pro forma net income (loss)	$ 790,477	$ (778,017)
Earnings (loss) per share:
Basic – as reported	$ 0.37	$ (0.03)
Basic – pro forma	$ 0.15	$ (0.15)
Diluted – as reported	$ 0.35	$ (0.03)
Diluted – pro forma	$ 0.14	$ (0.15)

(in thousands)	2006	2005	2004
Denominator for basic net income (loss) per common share – weighted-average shares	5,540	5,125	5,101
Dilutive securities: options/restricted stock units	610	388	–
Denominator for diluted net income (loss) per common share – adjusted weighted-average shares	6,150	5,513	5,101

	2006	2005
Materials	$3,518,998	$3,139,027
Work-in-progress	800,303	756,747
Finished goods, including completed subassemblies	1,465,058	690,644
	$5,784,358	$4,586,418

	2006	2005
Machinery and equipment	$ 847,406	$ 596,227
Enteral feeding pumps	3,945,140	3,858,699
Furniture and fixtures	964,404	1,191,617
Tooling costs	2,160,875	1,514,827
Building	3,033,536	3,012,638
Land	504,415	1,084,415
	11,455,776	11,258,423
Less accumulated depreciation and amortization	(6,782,429)	(6,619,287)
	$ 4,673,347	$ 4,639,136

	2006	2005
Accrued payroll and related taxes and benefits	$997,806	$888,656
Accrued vacation	148,812	166,505
Warranty reserve	159,000	152,000
Other accrued expense	323,500	83,750
	$1,629,118	$1,290,911

	2006	2005
Deferred tax assets:
Accruals and expenses not currently deductible	$ 315,861	$ 303,437
Fixed asset and other basis differences	57,983	120,230
Net operating loss carryforward	224,319	805,302
Federal and state tax credit carryforward	135,009	395,088
Charitable contribution carryforward	1,842,491	1,845,062

Capital loss carryforward	1,803,538	3,366,236
Total deferred tax assets	4,379,201	6,835,355

Valuation allowance	(3,681,074)	(6,835,355)
Net deferred taxes	$ 698,127	$ -

Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price	Number Exercisable	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
$ 1.44-3.33	834,000	3.4 years	$ 2.66	739,125	3.2 years	$ 2.65
8.55-13.13	210,000	4.7 years	8.99	105,195	5.4 years	8.55
$ 1.44-13.13	1,044,000	3.7 years	$ 3.94	844,320	3.4 years	$ 3.38

Selling and marketing	3,155	1,065	--	4,220
Research and development	1,025	617	--	1,642
Contribution margin	4,503	3,700	--	8,205
General and administrative	--	--	5,720	5,720
Asset impairment	31	--	--	31
Other (income)/expense	--	--	(910)	(910)
Provision for income taxes	--	--	68	68
Net income				$ 3,296

Total assets	$ 48	$ 4,048	$ 22,895	$ 26,991

General and administrative	--	--	3,853	3,853
Other (income)/expense	--	--	94	94
Benefit for income taxes	--	--	(31)	(31)
Net loss				$ (179)

Total assets	$ 364	$ 4,048	$ 12,989	$ 17,401