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<SEC-DOCUMENT>0000950137-07-018240.txt : 20071206
<SEC-HEADER>0000950137-07-018240.hdr.sgml : 20071206
<ACCEPTANCE-DATETIME>20071206130136
ACCESSION NUMBER:		0000950137-07-018240
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		8
CONFORMED PERIOD OF REPORT:	20070930
FILED AS OF DATE:		20071206
DATE AS OF CHANGE:		20071206

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DIGI INTERNATIONAL INC
		CENTRAL INDEX KEY:			0000854775
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER COMMUNICATIONS EQUIPMENT [3576]
		IRS NUMBER:				411532464
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-17972
		FILM NUMBER:		071288820

	BUSINESS ADDRESS:	
		STREET 1:		11001 BREN ROAD EAST
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343
		BUSINESS PHONE:		6129123444

	MAIL ADDRESS:	
		STREET 1:		11001 BREN ROAD EAST
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c22023e10vk.htm
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vk</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


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




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES</B> <B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-K</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the fiscal year ended: September&nbsp;30, 2007
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number: 0-17972</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>DIGI INTERNATIONAL INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>41-1532464</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification Number)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>11001 Bren Road East<BR>
Minnetonka, Minnesota 55343</B><BR>
<DIV style="margin-top: 1px"><FONT style="border-top: 1px solid #000000">(Address of principal executive offices) (Zip Code)</FONT></DIV></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>(952)&nbsp;912-3444</B><BR>
<DIV style="margin-top: 1px"><FONT style="border-top: 1px solid #000000">(Registrant&#146;s telephone number, including area code)</FONT></DIV></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Securities registered pursuant to Section&nbsp;12(b) of the Act:</B></DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Title of each class</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Name of each exchange on which registered</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">Common Stock, par value $.01 per share
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The NASDAQ Global Select Market</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Securities registered pursuant to Section&nbsp;12(g) of the Act:</B><BR>
None</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of
the Securities Act. Yes <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if the registrant is not required to file reports pursuant to Section&nbsp;13 or
Section 15(d) of the Act. Yes <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15 (d)&nbsp;of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months, and (2)
has been subject to such filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation&nbsp;S-K is
not contained herein, and will not be contained, to the best of Registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form 10-K
or any amendment to this Form 10-K. <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in
Rule&nbsp;12b-2 of the Exchange Act.
</DIV>
<DIV align="center" style="font-size: 10pt; margin-top: 0pt">Large accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accelerated filer <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-accelerated filer <FONT face="Wingdings">&#111;</FONT></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Act). &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The aggregate market value of voting stock held by non-affiliates of the Registrant as of the last
business day of the Registrant&#146;s most recently completed second
fiscal quarter was $319,449,300,
based on a closing price of $12.70 per common share as reported on the NASDAQ Global Select Market
(formerly the NASDAQ National Market).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Shares of common stock outstanding as of November&nbsp;26, 2007: 25,652,529
</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INDEX</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">DOCUMENTS INCORPORATED BY REFERENCE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table shows, except as otherwise noted, the location of information required in this
Form 10-K, in our Annual Report to Stockholders for the year ended September&nbsp;30, 2007 and Proxy
Statement for our Annual Meeting of Stockholders scheduled for January&nbsp;24, 2008, a definitive copy
of which will be filed on or about December&nbsp;6, 2007. All such information set forth below under
the heading &#147;Page/Reference&#148; is incorporated herein by reference, or included in this Form 10-K on
the pages indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-bottom: 1px solid #000000">ITEM IN FORM 10-K</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">PAGE/REFERENCE</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">PART I.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">ITEM 1.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#102">Business</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">4</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">ITEM 1A.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#103">Risk Factors</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">13</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">ITEM 1B.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#104">Unresolved Staff Comments</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">18</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">ITEM 2.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#105">Properties</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">19</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">ITEM 3.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#106">Legal Proceedings</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">19</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">ITEM 4.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107">Submission of Matters to a Vote of Security Holders</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">20</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">PART II.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">ITEM 5.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109">Market for Registrant&#146;s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">21</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">ITEM 6.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#110">Selected Financial Data</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">23</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">ITEM 7.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">24</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">ITEM 7A.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112">Quantitative and Qualitative Disclosures About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">39</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">ITEM 8.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113">Financial Statements and Supplementary Data</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">40</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">ITEM 9.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#114">Changes in and Disagreements with Accountants On Accounting and Financial Disclosure</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">71</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">ITEM 9A.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#115">Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">71</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">ITEM 9B.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116">Other Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">71</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
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    <TD width="8%">&nbsp;</TD>
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    <TD width="53%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
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<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">ITEM IN FORM 10-K</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">PAGE/REFERENCE</TD>
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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">PART III.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">ITEM 10.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#118">Directors, Executive Officers and Corporate Governance</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Directors of the Registrant</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Election of Directors, Proxy Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#119">Executive Officers of the Registrant</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">72</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Compliance with Section 16(a) of the Exchange Act</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section 16(a) Beneficial Ownership Reporting Compliance, Proxy Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#120">Code of Ethics</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">73</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">ITEM 11.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Compensation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Election of Directors - Compensation
Committee Interlocks and Insider Participation; Executive Compensation,
Compensation of Directors, Proxy Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">ITEM 12.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#121">Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Security Ownership of Principal Stockholders and Management, Proxy Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#122">Equity Compensation Plan Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">73</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">ITEM 13.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certain Relationships and Related Transactions, Director Independence</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Election of Directors - Director Independence; Related Person Transaction Approval Policy, Proxy Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">ITEM 14.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Principal Accounting Fees and Services</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Audit and Non-Audit Fees, Proxy Statement</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">PART IV.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">ITEM 15.</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#124">Exhibits and Financial Statement Schedules</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">76</TD>
</TR>
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<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c22023exv21.htm">Subsidiaries of the Company</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c22023exv23.htm">Consent of Independent Registered Public Accounting Firm</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c22023exv24.htm">Powers of Attorney</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c22023exv31wxay.htm">Certification of Chief Executive Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c22023exv31wxby.htm">Certification of Chief Financial Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c22023exv32.htm">Section 1350 Certification</A></FONT></TD></TR>
</TABLE>
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<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
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<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART I</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>FORWARD-LOOKING STATEMENTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This Annual Report contains certain statements that are &#147;forward-looking statements&#148; as that term
is defined under the Private Securities Litigation Reform Act of 1995, and within the meaning of
Section&nbsp;27A of the Securities Act of 1933, as amended, and Section&nbsp;21E of the Securities Exchange
Act of 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The words &#147;believe,&#148; &#147;anticipate,&#148; &#147;intend,&#148; &#147;estimate,&#148; &#147;target,&#148; &#147;may,&#148; &#147;will,&#148; &#147;expect,&#148; &#147;plan,&#148;
&#147;project,&#148; &#147;should,&#148; or &#147;continue&#148; or the negative thereof or other expressions, which are
predictions of or indicate future events and trends and which do not relate to historical matters,
identify forward-looking statements. Such statements are based on information available to us as
of the time of such statements and relate to, among other things, expectations of the business
environment in which we operate, projections of future performance, perceived opportunities in the
market and statements regarding our mission and vision. Forward-looking statements involve known
and unknown risks, uncertainties and other factors, which may cause our actual results, performance
or achievements to differ materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new information, future
events or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our future operating results and performance trends may be affected by a number of factors,
including, without limitation, those described in Item&nbsp;1A, Risk Factors, of this Form 10-K. Those
risk factors, and other risks, uncertainties and assumptions identified from time to time in our
filings with the Securities and Exchange Commission, including without limitation, our quarterly
reports on Form 10-Q and our registration statements, could cause our actual future results to
differ materially from those projected in the forward-looking statements as a result of the factors
set forth in our various filings with the Securities and Exchange Commission and of changes in
general economic conditions, changes in interest rates and/or exchange rates and changes in the
assumptions used in making such forward-looking statements.
</DIV>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The terms &#147;we,&#148; &#147;our&#148; or &#147;us&#148; mean Digi International Inc. and all of the subsidiaries included in
the consolidated financial statements unless the context indicates otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>COMPANY OVERVIEW</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International Inc. was formed in 1985 as a Minnesota corporation and reorganized as a Delaware
corporation in 1989 in conjunction with its initial public offering. Our common stock is traded on
the NASDAQ Global Select Market under the symbol DGII. We have our worldwide headquarters in
Minnetonka, Minnesota, with regional sales offices throughout North America, Europe, and Asia
Pacific, and engineering offices in North America and Europe. Our products are available through
approximately 285 distributors in more than 69 countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our first products were box and board-level serial port adapters (sold under the DigiBoard&#174; brand)
that were used to directly connect multiple peripherals, such as standalone computer terminals, to
personal computers or a host computer system. During the 1990s, we employed Ethernet technology to
provide the connectivity infrastructure for businesses. This trend began in the head and branch
offices of businesses and in the late 1990s began to extend to the factory, retail stores,
restaurants, and many other environments such as medical, traffic control, and building controls.
During the same time, the semiconductor industry was also advancing rapidly. Complete systems were
being built on single integrated circuits (chips). These chips, as part of a box or board product,
could be used to build a network interface for virtually any device for which network connectivity
was required. We recognized the developing opportunities for device connectivity and in early 2000
implemented a strategy to leverage the brand strength that we had established with the DigiBoard
product
line by organically developing or acquiring next-generation connectivity products and technologies
that would extend the value of the brand into an array of device networking applications.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>COMPANY OVERVIEW (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the past several years, we have augmented the strategy with an increasing emphasis on wireless
solutions. Through both acquisition and internal product development, we have built a large
portfolio of wireless products. Our wireless solutions are the basis of a new initiative we
launched this year called &#147;Drop-in Networking,&#148; which is paving the way for new device networking
applications. Drop-In Networking solutions provide end-to-end wireless connectivity to commercial
grade electronic devices in locations where wires do not work or cannot be used. This initiative
provides opportunities for us in the next wave of Internet growth. The initial wave was focused on
connecting people, first with personal computers and now with cell phones, PDAs, and other related
consumer devices. The next wave is about connecting devices and machines. We believe that the
Internet will support billions of new devices in the next several years, and we anticipate that our
Drop-In Networking solutions will provide opportunities for a significant market expansion in
device networking.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PRODUCTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are divided into embedded and non-embedded product groupings. An embedded product is
used by a product developer to build an electronic device (e.g., utilities meter, environmental
sensor, retail scanner, medical instrument). It provides processing power and wired and/or
wireless network connectivity to that device. Additional hardware or software development is
required on the part of the customer when using an embedded product.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A non-embedded product is connected externally to a device or larger system (e.g., retail checkout,
building access control panel, traffic controller) to provide network connectivity or port
expansion. Non-embedded products generally do not require additional hardware development and
often can be used right out of the box. They can provide an economical way to network-enable
previously deployed devices, allowing companies to utilize the latest technologies without
replacing existing equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We offer a device manufacturer a range of non-embedded and embedded alternatives depending on their
volumes and needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Embedded Networking Products</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Modules &#151; </B>To develop a device around a chip or microprocessor involves a high level of complexity.
A module is a group of components that are set up to work together, taking away most of that
complexity. An embedded module provides somewhat less flexibility than a chip, but is much easier
to implement into a product design.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our modules can be divided into two categories: processor modules and communications modules.
Processor modules provide customers with a networked platform for use as the main processor in an
embedded system and the flexibility to allow them to add features and functionality to get to
market very quickly with a network-enabled device. They are targeted as the core processors for
products including access control systems, Point-of-Sale (POS)&nbsp;systems, Radio Frequency ID (RFID)
readers, medical devices and instrumentation and networked displays. Communications modules are
ideal for network-enabling and web-enabling a device. They enable customers to easily accommodate
both wired and wireless functionality in one product design.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PRODUCTS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Typically with a communication module, there is another processor performing the central
processing. Adding wired or wireless networking communication to a device allows companies to
manage that device over a network or via the Internet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Chips &#151;</B> A chip (or microprocessor) provides the &#147;brains&#148; and processing power of an intelligent
electronic device or communication sub-system. Some of our higher volume customers choose to
purchase chips and build their own products. Chips are low cost but require the highest level of
development expertise. Building a solution from the chip level offers a low total cost of the end
design, but the level of complexity in product development can increase risk and prolong time to
market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our chips are the building blocks for many of our embedded and non-embedded products. By using our
own microprocessors, we can ensure complete software/hardware compatibility for product designs.
In addition, it allows us to guarantee long-term availability to our module customers. This is a
key advantage since many of these products are expected to be in use for five to ten years once
they are developed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Software and Development Tools &#151; </B>We support our embedded products with software and development
tools so that customers can get to market quickly with new products. We offer a unique type of
development kit that is easy to use, low cost, and enables development to begin within 30 minutes
of installation. Our development kits include all of the hardware and software building blocks
needed to develop an embedded product or to investigate a new embedded technology. Our kits
support multiple operating environments, including Linux&#174;, Microsoft&#174; Windows&#174; Embedded CE,
Microsoft&#174; .NET Micro Framework, and our own Rabbit Dynamic C&#174; and Digi NET&#043;OS&#174;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Single-Board Computers &#151; </B>Single-board computers (SBCs) are complete systems on a single circuit
board. They are essentially a programmable box product without a box &#151; everything is on the board
and ready to be embedded into a larger system. They offer the same benefits as processor modules,
but they also eliminate the need for additional interface circuitry because they include all of the
key device interface components on one circuit board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Network Interface Cards &#151; </B>Our intelligent Network Interface Cards (NICs) are legacy products that
were used to provide Ethernet networking interfaces for printers. This function has increasingly
been taken over by the main processor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Non-Embedded Products</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cellular Routers &#151; </B>Cellular routers provide connectivity for devices over a cellular data network.
They can be used as an alternative to landlines for cost-effective primary or backup connectivity
to previously hard-to-reach sites and devices. We introduced the first intelligent high-speed
cellular router in 2005 to address the growing need for customers to connect remote sites and
devices. The products have been certified by major wireless service providers in the U.S. and
abroad, including AT&#038;T&#174;, Verizon Wireless&#174; and Sprint&#174;. All of our cellular products include a
unique network management software platform called Connectware&#174; that provides secure management of
devices across remote networks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Gateways &#151;</B> A gateway aggregates local wireless data traffic for transport over a cellular or other
IP-based network, usually to be transported back to a central application or database. Our gateway
products, part of our Drop-in Networking initiative, enable devices or groups of devices to be
networked in locations without a pre-existing network or where access to a network is prohibited.
These gateways can work in conjunction with our wireless adapters and wireless embedded modules to
enable customers to monitor and manage remote devices in a non-intrusive and economical way.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PRODUCTS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Wireless Communications Adapters &#151; </B>Our wireless communications adapters are small box products that
utilize a variety of wireless protocols for PC-to-device or device-to-device connectivity, often in
locations where deploying a wired connection is costly, disruptive or impractical. By supporting
ZigBee&#174;, Wi-Fi&#174; and proprietary radio frequency (RF)&nbsp;technologies, we can meet most customer
application requirements, such as serial cable replacement, Ethernet cable replacement, mesh
networking, low cost/low power remote monitoring, and long distance connectivity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Console Servers &#151; </B>Console servers, or console management servers, provide access to the serial
ports of network equipment such as servers, routers or switches. Our intelligent console servers
enable customers to access, monitor and manage network devices across multiple sites, both over the
network or via their console ports, even when the network is down. They also provide advanced
auditing and logging capabilities that complement regulatory compliance efforts including
Sarbanes-Oxley and HIPPA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Serial Servers &#151; </B>Serial Servers (also called device servers and terminal servers) add wired or
wireless network connectivity to a serial device. They transfer data between a serial port and an
Ethernet network, turning a previously isolated device with a serial port into a fully
collaborative component of the network. We believe that serial servers will remain an important
product category as Ethernet-based serial connections continue to extend beyond their current
applications into new markets such as building automation, healthcare, process control, and secure
console port management on servers, routers, switches, and other network equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>USB Connected Products &#151; </B>The Universal Serial Bus (USB)&nbsp;is a &#147;plug-and-play&#148; interface between a
computer and peripheral devices. In recent years, many serial ports on PCs have been replaced
with USB ports, due in large part to the usability and cost-effectiveness of USB devices. We have
one of the most comprehensive and sophisticated USB port expansion product lines in the industry.
Our USB-to-serial converters enable customers to expand a single USB port into multiple serial
ports to connect legacy serial peripheral devices. The product line also includes USB hubs that
add additional USB or powered USB ports, often for retail device connectivity; USB modem modules to
add modem ports for dial-up remote access applications; and a network-enabled hub that connects USB
devices over an IP network &#151; an industry first.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Remote Display Products &#151; </B>Our remote display connectivity solutions are designed for digital
advertising, digital menus, airport status displays, stadium scoreboards, or other applications
where visual content is to be displayed in public areas. These &#147;zero-clients&#148; connect display,
serial, and USB devices over an IP network &#151; without a dedicated PC or thin client. Removing the
PC or thin client in digital display applications saves space, reduces costs and increases security
and reliability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cameras and Sensors &#151; </B>Cameras and sensors are used in a wide range of environmental monitoring and
building automation/security applications. Our cameras and sensors are USB-attached. They are
supported by application software that provides device status, data logging and alerts. These
products also play a role in our Drop-in Networking initiative. The cameras can be connected to our
cellular gateway to provide video or still-frame images from a chosen location, and the sensors can
be connected to our wireless adapters to provide environmental data from end-point nodes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Serial Cards &#151; </B>A serial card plugs into the expansion slot of a computer to provide serial ports
for device connectivity. We are a market leader in this product category and offer one of the
most comprehensive serial card product families in the market. Our products support a wide range
of operating systems, port densities, bus types, expansion options, and applications. As Ethernet
connections extend beyond current applications, the serial card products are gradually
transitioning to network-attached and/or USB-attached devices. While we continue to fully support
this mature product line, we have strengthened our product offering to meet customer needs and are
working to seamlessly transition customers to newer technologies.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PRODUCTS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Network Management Software </B>&#151; Network management software provides a means of managing devices on a
network from remote locations. We offer network management software that provides enterprise class
management and administration to many of our products. It enables customers to securely manage,
monitor and configure groups of devices across remote networks from anywhere across a wired or
wireless Internet Protocol (IP)&nbsp;network, including the Internet. One of the key benefits of this
software is the reduction of administrative maintenance costs. Fewer trips are required to remote
locations because the software can be used to diagnose and solve problems, and a dedicated
administrator is not needed to monitor all of the devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>DROP-IN NETWORKING INITIATIVE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recently announced a new initiative called &#147;Drop-in Networking.&#148; Drop-in Networking provides
end-to-end wireless access to electronic devices in places where wires will not work or cannot be
used. Incorporating products from both our embedded and non-embedded categories, including
modules, wireless communications adapters, cellular routers, gateways, sensors, and network
management software, Drop-in Networking holds the potential to economically extend network
connectivity to millions of new devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For applications in energy management, building control, manufacturing, supply chain management and
a host of others, Drop-in Networking products provide a non-intrusive way to connect devices
anywhere they reside. Devices are being connected that were previously not networked, such as
irrigation controls for farms and golf courses, fish farm monitoring equipment and fitness
equipment to name a few. Our innovations in Drop-in Networking enables our customers to
differentiate their products, provides better customer service, and frequently creates new revenue
streams.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>APPLICATION MARKETS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe we are a worldwide leader in commercial device connectivity, through network-enabling
devices in stores, factories, office buildings, banks, gas stations, oil rigs, hospitals, and many
other vertical environments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Industrial Automation </B>&#151; We provide products to network-enable process and quality control
equipment, pump controllers, bar-code readers/scanners, scales and weighing stations, printers,
machine vision systems, programmable logic controllers (PLCs) and many other types of manufacturing
equipment. Connecting these devices over a network can help a manufacturing facility solve problems
associated with productivity, inventory management and quality control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Retail/Point-of-Sale (POS) </B>&#151; Our products solve the challenges associated with enabling POS devices
to effectively share information across the network. They can be used to easily connect network
devices like card swipe readers, bar-code scanners, scales, receipt printers and cash register
display poles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Building Automation/Security </B>&#151; Our products help automate and control buildings&#146; heating,
ventilation and air conditioning (HVAC)&nbsp;and security systems, and solve the problem of standalone
control systems that are unable to talk to each other and share important data. Our solutions can
be used to centrally manage equipment and improve the comfort, safety and productivity of building
occupants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Medical/Healthcare </B>&#151; We provide a way to network-enable medical equipment and devices to receive,
monitor and access patient information quickly, easily, and accurately, utilizing the hospital&#146;s
existing Ethernet or wireless network to improve patient care and reduce operating costs.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>APPLICATION MARKETS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Utilities</B> &#151; Migrating to IP-based communications can be a challenge for utility companies, due to
compatibility issues between field equipment and the applications used with them. Our products
enable companies to network-enable existing products in the field without replacing hardware or
rewriting existing application software.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Data Center Management </B>&#151; Our out-of-band management solutions enable immediate response when a
network fails or in other critical situations, providing connectivity to servers and network
equipment when the primary network is down and eliminating costly travel to remote sites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Office Networking </B>&#151; Each business day billions of images are created, moved and then output in some
form over networks and the Internet in a process called image communication. This demanding
process has driven the need for a new generation of network attached devices to manage the ever
increasing load of network media. We provide core solutions for connecting, enabling and managing
this process for office, industrial and POS printers, as well as multifunction peripherals (MFPs),
network cameras, network liquid crystal displays (LCDs), information displays and network
projectors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Traffic Management </B>&#151; Our solutions make it easy to Ethernet-enable the field devices along
roadsides and at intersections so that a traffic management center has access to real-time
information. Some of the functions enabled by these solutions include traffic light coordination,
hazardous road condition alerts and variable message sign updates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ACQUISITIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have made several acquisitions in the past five fiscal years that are consistent with our
corporate strategy.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2002, we acquired NetSilicon&#174;, Inc. (NetSilicon), a developer and marketer
of network attached processors and device connectivity software. NetSilicon&#146;s advanced
microprocessors and software allow customers to build intelligent, network-enabled
solutions for manufacturers, mostly original equipment manufacturers (OEMs). The NetSilicon
acquisition added chips, NICs, and software and development tools to our embedded product
offering. The NetSilicon chips also formed the foundation for many of our embedded modules
and next generation of non-embedded box products.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2005, we acquired FS Forth-Systeme GmbH/Sistemas Embebidos S.A. (FS Forth),
leading providers of embedded modules based on our processors and NET&#043;OS software, as well
as other microprocessors with supporting embedded software. The acquisition enhanced our
embedded module portfolio and also added expertise in a wide range of popular operating
systems including Linux and Microsoft Windows CE. Effective October&nbsp;1, 2006, FS Forth
merged into Digi International GmbH.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, we acquired Rabbit Semiconductor&#174; Inc. (formerly Z-World&#153;, Inc.). The
acquisition expanded our embedded portfolio to include the Rabbit line of microprocessors
and microprocessor-based core modules and Z-World single-board computers (now all sold
under the Rabbit brand). With bundled hardware and software, these products facilitate
quick time-to-market for device manufacturers who need to add network connectivity to
endpoint devices such as sensors, meters, vending machines, card readers, and scales.</TD>
</TR>

</TABLE>
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ACQUISITIONS (CONTINUED)</B>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In July&nbsp;2006, we acquired MaxStream&#174;, Inc. (MaxStream), a leader in the wireless device
networking market. MaxStream supplies device manufacturers and integrators with reliable
wireless modules and box products that are easy to use and allow customers to wirelessly
monitor and control electronic devices. Typical applications include automated utility
meter reading, oil and gas monitoring, remote control and monitoring of commercial heating
and air conditioning systems, vehicle information access for fleet management, industrial
controls, wireless sensors, and electronic signals. MaxStream was also a pioneer in the
field of ZigBee&#174;/802.15.4 wireless communications. The MaxStream acquisition significantly
expanded our wireless offering both with embedded modules and non-embedded wireless
communications adapters. The products also play a key role in our Drop-in Networking
initiative.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to establish clear brand identities, our plan is to focus on two brands, Digi and Rabbit.
Today the Digi and Rabbit brands have established strong identities with our targeted customer
base. We believe that our customers associate the Digi brand with &#147;reliability&#148; and the Rabbit
brand with &#147;ease of integration.&#148; Many of our customers choose us because they are building a very
complex system solution and they want the highest level in product reliability. In the core module
and semiconductor application environments, ease of integration is a powerful brand identity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We continue to leverage a common core technology base to develop and provide innovative
connectivity solutions to our customers. Core technology is used across product lines to provide
additional functionality for customers, allowing them to get to market with network-enabled devices
faster. We have positioned ourselves in the growing market of integrated hardware and software
connectivity solutions to network-enable the coming generation of intelligent devices in business
applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>DISTRIBUTION AND PARTNERSHIPS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We sell our products through a global network of distributors, systems integrators, value added
resellers (VARs) and original equipment manufacturers (OEMs).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our larger U.S. distributors include Tech Data Corporation, Arrow Distributing, Ingram Micro,
Synnex, Future Electronics and NuHorizons. We also maintain relationships with many other
distributors in the U.S., Canada, Europe, Asia Pacific, and Latin America. Additionally, we
maintain strong relationships with catalog distributors CDW, Insight, Digi-Key and Mouser
Electronics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We maintain strategic alliances with other industry leaders to develop and market technology
solutions. These include most major communications hardware and software vendors, operating system
suppliers, computer hardware manufacturers, and cellular carriers. Key partners include:
Microsoft, VMware, Hewlett Packard, IBM, Dell, Toshiba, Atmel, Ember, Freescale, Siemens, Kyocera,
AT&#038;T, Sprint, Verizon, and several other cellular carriers. Furthermore, we maintain a worldwide
network of authorized developers that extends our reach into certain technology applications or
geographical regions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our customer base includes many of the world&#146;s largest companies. We have strategic sales
relationships with leading vendors, allowing them to ship our board and network products as
component parts of their overall networking solutions. These vendors include IBM, Rackable, NCR,
Sun Microsystems, Fujitsu Transaction Solutions, Abbott Labs and Hewlett Packard, among others.
Many of the world&#146;s leading telecommunications companies and Internet service providers also rely
on our products, including Alcatel-Lucent, AT&#038;T, Sprint, Verizon and Siemens.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">No customer comprised more than 10% of our net sales for the years ended September&nbsp;30, 2007 and
2006. One distributor, Tech Data, comprised 12.9% of our net sales for the year ended September
30, 2005.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>COMPETITIVE CONDITIONS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We compete in the communications technology industry, which is characterized by rapid technological
advances and evolving industry standards. The market can be significantly affected by new product
introductions and marketing activities of industry participants. We compete for customers on the
basis of existing and planned product features, company reputation, brand recognition, technical
support, relationships with partners, quality and reliability, product development capabilities,
price and availability. While we have no competitors that carry a comparable range of products, we
do have various competitors based on specific products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are a leader in device networking for business, developing reliable products and technologies to
connect and securely manage local or remote electronic devices over the network or via the
Internet. Our enterprise solutions include embedded or non-embedded products or combinations of
these products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>OPERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our manufacturing operations procure all parts and perform certain functions involved in
production. Most of our product manufacturing is subcontracted to outside firms that specialize in
such services. We rely on third party foundries for our semiconductor devices. This approach is
beneficial because it allows us to reduce our fixed costs, maintain production flexibility and
optimize our profits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are manufactured to our designs with standard and semi-custom components. Most of
these components are available from multiple vendors. We have several single-sourced supplier
relationships, either because alternative sources are not available or because the relationship is
advantageous to us. If these suppliers are unable to provide a timely and reliable supply of
components, we could experience manufacturing delays that would adversely affect our consolidated
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SEASONALITY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, our business is not considered to be highly seasonal, although our first fiscal quarter
revenue is often less than other quarters due to the holidays and fewer shipping days. In
addition, some of our products are dependent upon the semiconductor industry which is highly
cyclical and subject to rapid technological change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>RESEARCH AND DEVELOPMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal years 2007, 2006 and 2005, our research and development expenditures were $24.2
million, $20.9&nbsp;million and $16.5&nbsp;million, respectively. Due to rapidly changing technology in the
communications technology industry, we believe that our success depends primarily upon the product
development skills of our personnel. Our proprietary rights and technology are protected by a
combination of copyrights, trademarks, trade secrets and patents. We have established common law
and registered trademark rights on a family of marks for a number of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>BACKLOG</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2007, we had backlog orders in the amount of $14.1&nbsp;million. Most of these
orders are expected to be shipped in fiscal 2008. Backlog as of September&nbsp;30, 2006 was $12.4
million and $9.0&nbsp;million as of September&nbsp;30, 2005. Backlog as of any particular date is not
necessarily indicative of our future sales trends.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. BUSINESS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>EMPLOYEES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We had 564 employees on September&nbsp;30, 2007 compared to 549 employees on September&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>GEOGRAPHIC AREAS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial information about geographic areas appears in Note 4 to our Consolidated Financial
Statements in this Form 10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>DIGI INTERNATIONAL WEBSITE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are
available through our website (<U>www.digi.com</U>) under the &#147;About us &#151; Investor Relations&#148;
caption or by writing to us. This information is available free of charge as soon as reasonably
practicable after we electronically file such material with the Securities and Exchange Commission.
These reports can also be accessed via the SEC website, <U>www.sec.gov</U>, or via the SEC&#146;s
Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Information
concerning the operation of the SEC&#146;s Public Reference Room can be obtained by calling
1-800-SEC-0330.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are not including the information on our website as part of, or incorporating it by reference
into, our Form 10-K.
</DIV>

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</DIV>

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<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Multiple risk factors exist which could have a material effect on our operations, results of
operations, profitability, financial position, liquidity, capital resources and common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Relating to Our Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our dependence on new product development and the rapid technological change that characterizes our
industry make us susceptible to loss of market share resulting from competitors&#146; product
introductions and similar risks.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The communications technology industry is characterized by rapidly changing technologies, evolving
industry standards, frequent new product introductions, short product life cycles and rapidly
changing customer requirements. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and unmarketable. Our
future success will depend on our ability to enhance our existing products, to introduce new
products to meet changing customer requirements and emerging technologies, and to demonstrate the
performance advantages and cost-effectiveness of our products over competing products. Failure by
us to modify our products to support new alternative technologies or failure to achieve widespread
customer acceptance of such modified products could cause us to lose market share and cause our
revenues to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may experience delays in developing and marketing product enhancements or new products that
respond to technological change, evolving industry standards and changing customer requirements.
There can be no assurance that we will not experience difficulties that could delay or prevent the
successful development, introduction, and marketing of these products or product enhancements, or
that our new products and product enhancements will adequately meet the requirements of the
marketplace and achieve any significant or sustainable degree of market acceptance in existing or
additional markets. In addition, the future introductions or announcements of products by us or
one of our competitors embodying new technologies or changes in industry standards or customer
requirements could render our then-existing products obsolete or unmarketable. There can be no
assurance that the introduction or announcement of new product offerings by us or one or more of
our competitors will not cause customers to defer their purchase of our existing products, which
could cause our revenues to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We intend to continue to devote significant resources to our research and development, which, if
not successful, could cause a decline in our revenues and harm our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We intend to continue to devote significant resources to research and development in the coming
years to enhance and develop additional products. For the fiscal years ended 2007, 2006 and 2005,
our research and development expenses comprised 14.0%, 14.4% and 13.2%, respectively, of our net
sales. If we are unable to develop new products as a result of our research and development
efforts, or if the products we develop are not successful, our business could be harmed. Even if
we develop new products that are accepted by our target markets, the net revenues from these
products may not be sufficient to justify our investment in research and development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A substantial portion of our recent development efforts have been directed toward the development
of new products targeted to manufacturers of intelligent, network-enabled devices and other
embedded systems in various markets, including markets in which networking solutions for embedded
systems have not historically been sold, such as markets for industrial automation equipment,
security equipment and medical equipment. Our financial performance is dependent upon the
development of the intelligent device markets that we are targeting, the increasing adoption of
wireless technologies by these markets and our ability to successfully compete and sell our
products to manufacturers of these intelligent devices.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Certain of our products are sold into mature markets, which could limit our ability to continue to
generate revenue from these products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain of our products provide asynchronous and synchronous data transmissions via add-on cards.
The market for add-on asynchronous and synchronous data communications cards is mature.
Furthermore, certain applications of our embedded network interface cards are also considered
mature. As the overall market for these products decreases due to the adoption of new
technologies, we expect that our revenues from these products will continue to decline. As a
result, our future prospects depend in large part on our ability to acquire or develop and
successfully market additional products that address growth markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our failure to effectively manage product transitions could have a material adverse effect on our
revenues and profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From time to time, we or our competitors may announce new products, capabilities, or technologies
that may replace or shorten the life cycles of our existing products. Announcements of currently
planned or other new products may cause customers to defer or stop purchasing our products until
new products become available. Furthermore, the introduction of new or enhanced products requires
us to manage the transition from older product inventories and ensure that adequate supplies of new
products can be delivered to meet customer demand. Our failure to effectively manage transitions
from older products could have a material adverse effect on our revenues and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our failure to compete successfully in our highly competitive market could result in reduced prices
and loss of market share.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The market in which we operate is characterized by rapid technological advances and evolving
industry standards. The market can be significantly affected by new product introductions and
marketing activities of industry participants. We compete for customers on the basis of existing
and planned product features, company reputation, brand recognition, technical support,
relationships with partners, quality and reliability, product development capabilities, price, and
availability. Certain of our competitors and potential competitors may have greater financial,
technological, manufacturing, marketing, and personnel resources than us. Present and future
competitors may be able to identify new markets and develop products more quickly, which are
superior to those developed by us. They may also adapt new technologies faster, devote greater
resources to research and development, promote products more aggressively, and price products more
competitively than us. There are no assurances that competition will not intensify or that we will
be able to compete effectively in the markets in which we compete.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our inability to obtain the appropriate telecommunications carrier certifications or approvals from
other governmental regulatory bodies could impede our ability to grow revenues in our wireless
products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The sale of our wireless products in certain geographical markets is sometimes dependent on the
ability to gain telecommunications carrier certifications and/or approvals by certain governmental
bodies. Failure to obtain these approvals, or delays in receiving the approvals, could impact our
ability to enter our targeted markets or to compete effectively or at all in these markets and
could have an adverse impact on our revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The cyclicality of the semiconductor industry may result in substantial period-to-period
fluctuations in operating results.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our semiconductor products provide networking capabilities for intelligent, network-enabled devices
and other embedded systems. The semiconductor industry is highly cyclical and subject to rapid
technological change and has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average selling prices and
production overcapacity. The semiconductor industry
also periodically experiences increased demand and production capacity constraints. As a result,
we may experience substantial period-to-period fluctuations in operating results due to general
semiconductor industry conditions.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Loss of one or more of our key customers could have an adverse effect on our revenues.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our sales are primarily made on the basis of purchase orders rather than under long-term
agreements, and therefore, any customer could cease purchasing our products at any time without
penalty. The decision of any key customer, including our distributors, to cease using our products
or a material decline in the number of units purchased by a significant customer could have a
material adverse effect on our revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The long and variable sales cycle for certain of our products makes it more difficult for us to
predict our operating results and manage our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The sale of our products typically involves a significant technical evaluation and commitment of
capital and other resources by potential customers and end users, as well as delays frequently
associated with end users&#146; internal procedures to deploy new technologies within their products and
to test and accept new technologies. For these and other reasons, the sales cycle associated with
certain of our products is typically lengthy and is subject to a number of significant risks,
including end users&#146; internal purchasing reviews, that are beyond our control. Because of the
lengthy sales cycle and the large size of certain customer orders, if orders forecasted for a
specific customer are not realized or delayed, our operating results could be materially adversely
affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We depend on manufacturing relationships and on limited-source suppliers, and any disruptions in
these relationships may cause damage to our customer relationships.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We procure all parts and certain services involved in the production of our products and
subcontract most of our product manufacturing to outside firms that specialize in such services.
Although most of the components of our products are available from multiple vendors, we have
several single-source supplier relationships, either because alternative sources are not available
or because the relationship is advantageous to us. There can be no assurance that our suppliers
will be able to meet our future requirements for products and components in a timely fashion. In
addition, the availability of many of these components to us is dependent in part on our ability to
provide our suppliers with accurate forecasts of our future requirements. Delays or lost sales
could be caused by other factors beyond our control, including late deliveries by vendors of
components. If we are required to identify alternative suppliers for any of our required
components, qualification and pre-production periods could be lengthy and may cause an increase in
component costs and delays in providing products to customers. Any extended interruption in the
supply of any of the key components currently obtained from limited sources could disrupt our
operations and have a material adverse effect on our customer relationships and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our use of suppliers in Southeast Asia involves risks that could negatively impact us.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We purchase printed circuit boards from suppliers in Southeast Asia. Product delivery times may be
extended due to the distances involved, requiring more lead time in ordering. In addition, ocean
freight delays may occur as a result of labor problems, weather delays or expediting and customs
issues. Any extended delay in receipt of the component parts could eliminate anticipated cost
savings and have a material adverse effect on our customer relationships and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our ability to compete could be jeopardized if we are unable to protect our intellectual property
rights.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ability to compete depends in part on our proprietary rights and technology. Our proprietary
rights and technology are protected by a combination of copyrights, trademarks, trade secrets and
patents.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We enter into confidentiality agreements with all employees, and sometimes with our customers and
potential customers, and limit access to the distribution of our proprietary information. There
can be no assurance that the steps taken by us in this regard will be adequate to prevent the
misappropriation of our technology. Our pending patent applications may be denied and any patents,
once issued, may be circumvented by our competitors. Furthermore, there can be no assurance that
others will not develop technologies that are superior to our technologies. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or
to obtain and use information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the United States.
There can be no assurance that our means of protecting our proprietary rights in the United States
or abroad will be adequate or that competing companies will not independently develop similar
technology. Our failure to adequately protect our proprietary rights could have a material adverse
effect on our competitive position and result in loss of revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>From time to time, we are subject to claims and litigation regarding intellectual property rights
or other claims, which could seriously harm us and require us to incur significant costs.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The communications technology industry is characterized by frequent litigation regarding patent and
other intellectual property rights. From time to time, we receive notification of a third-party
claim that our products infringe other intellectual property rights. Any litigation to determine
the validity of third-party infringement claims, whether or not determined in our favor or settled
by us, may be costly and divert the efforts and attention of our management and technical personnel
from productive tasks, which could have a material adverse effect on our ability to operate our
business and service the needs of our customers. There can be no assurance that any infringement
claims by third parties, if proven to have merit, will not materially adversely affect our business
or financial condition. In the event of an adverse ruling in any such matter, we may be required
to pay substantial damages, cease the manufacture, use and sale of infringing products, discontinue
the use of certain processes or be required to obtain a license under the intellectual property
rights of the third party claiming infringement. There can be no assurance that a license would be
available on reasonable terms or at all. Any limitations on our ability to market our products, or
delays and costs associated with redesigning our products or payments of license fees to third
parties, or any failure by us to develop or license a substitute technology on commercially
reasonable terms could have a material adverse effect on our business and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We face risks associated with our international operations and expansion that could impair our
ability to grow our revenues abroad.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that our future growth is dependent in part upon our ability to increase sales in
international markets. These sales are subject to a variety of risks, including fluctuations in
currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes
in regulatory requirements, longer accounts receivable payment cycles and potentially adverse tax
consequences, and export license requirements. In addition, we are subject to the risks inherent
in conducting business internationally, including political and economic instability and unexpected
changes in diplomatic and trade relationships. There can be no assurance that one or more of these
factors will not have a material adverse effect on our business strategy and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The loss of key personnel could prevent us from executing our business strategy.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our business and prospects depend to a significant degree upon the continuing contributions of our
executive officers and our key technical personnel. Competition for such personnel is intense, and
there can be no assurance that we will be successful in attracting and retaining qualified
personnel. Failure to attract and retain key personnel could result in our failure to execute our
business strategy.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Unanticipated changes in our tax rates could affect our future results.</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes
in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of
our deferred tax assets and liabilities, or by changes in tax laws or our interpretation of such
laws. In addition, we may be subject to the examination of our income tax returns by the Internal
Revenue Service and other U.S. and international tax authorities. We regularly assess the
potential outcomes resulting from these examinations to determine the adequacy of our provision for
income taxes. There can be no assurance that the outcomes from these examinations will not have an
effect on our consolidated operating results and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Any acquisitions we have made or will make could disrupt our business and seriously harm our
financial condition.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We will continue to consider acquisitions of complementary businesses, products or technologies.
In the event of any future purchases, we could issue stock that would dilute our current
stockholders&#146; percentage ownership, incur debt, assume liabilities, or incur large and immediate
write-offs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our operation of any acquired business may also involve numerous risks, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>problems combining the purchased operations, technologies, or products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unanticipated costs;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of management&#146;s attention from our core business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties integrating businesses in different countries and cultures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse effects on existing business relationships with suppliers and customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>risks associated with entering markets in which we have no or limited prior experience; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential loss of key employees, particularly those of the purchased organization.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We cannot assure that we will be able to successfully integrate any businesses, products,
technologies, or personnel that we have acquired or that we might acquire in the future and any
failure to do so could disrupt our business and have a material adverse effect on our consolidated
financial condition and results of operations. Moreover, from time to time, we may enter into
negotiations for a proposed acquisition, but be unable or unwilling to consummate the acquisition
under consideration. This could cause significant diversion of management&#146;s attention and
out-of-pocket expenses for us. We could also be exposed to litigation as a result of an
unconsummated acquisition, including claims that we failed to negotiate in good faith or
misappropriated confidential information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our failure to effectively comply with the requirements of applicable environmental legislation and
regulation could have a material adverse effect on our revenues and profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Production and marketing of products in certain states and countries may subject us to
environmental and other regulations. In addition, certain states and countries may pass new
regulations requiring our products to meet certain requirements to use environmentally friendly
components. Such laws and regulations have recently been passed in jurisdictions in which we
operate. The European Union has issued two directives relating to chemical substances in
electronic products. The Waste Electrical and Electronic Equipment Directive (WEEE)&nbsp;makes
producers of certain electrical and electronic equipment financially responsible for collection,
reuse, recycling, treatment and disposal of equipment placed in the European Union market after
August&nbsp;13, 2005. The Restrictions of Hazardous Substances Directive (RoHS) bans the use of certain
hazardous materials in electric and electrical equipment which are put on the market in the
European Union after July&nbsp;1, 2006. In the future, China and other countries including the United
States are expected to adopt further environmental compliance programs. If we fail to comply with
these regulations, we may not be able to sell our products in
jurisdictions where these regulations apply, which could have a material adverse effect on our
revenues and profitability.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1A. RISK FACTORS (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Risks Related to Our Common Stock</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The price of our common stock has been volatile and could continue to fluctuate in the future.</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The market price of our common stock, like that of many other high-technology companies, has
fluctuated significantly and is likely to continue to fluctuate in the future. During fiscal year
2007, the closing price of our common stock on the NASDAQ Global Select Market ranged from $11.57
to $16.64 per share. Our closing sale price on November&nbsp;26, 2007 was $14.53 per share.
Announcements by us or others regarding the receipt of customer orders, quarterly variations in
operating results, acquisitions or divestitures, additional equity or debt financings, results of
customer field trials, scientific discoveries, technological innovations, litigation, product
developments, patent or proprietary rights, government regulation and general market conditions may
have a significant impact on the market price of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Certain provisions of the Delaware General Corporation Law and our charter documents have an
anti-takeover effect.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There exist certain mechanisms under the Delaware General Corporation Law and our charter documents
that may delay, defer or prevent a change of control. For instance, under Delaware law, we are
prohibited from engaging in certain business combinations with interested stockholders for a period
of three years after the date of the transaction in which the person became an interested
stockholder unless certain requirements are met, and majority stockholder approval is required for
certain business combination transactions with interested parties. Our Certificate of
Incorporation contains a &#147;fair price&#148; provision requiring majority stockholder approval for certain
business combination transactions with interested parties, and this provision may not be changed
without the vote of at least 80% of the outstanding shares of our voting stock. Other mechanisms
in our charter documents may also delay, defer or prevent a change of control. For instance, our
Certificate of Incorporation provides that our Board of Directors has authority to issue series of
our preferred stock with such voting rights and other powers as the Board of Directors may
determine. Furthermore, we have a classified board of directors, which means that our directors
are divided into three classes that are elected to three-year terms on a staggered basis. Since
the three-year terms of each class overlap the terms of the other classes of directors, the entire
board of directors cannot be replaced in any one year. In addition, under Delaware law, directors
serving on a classified board may not be removed by shareholders except for cause. Pursuant to the
terms of a shareholder rights plan adopted in 1998, each outstanding share of common stock has one
attached right. The rights will cause substantial dilution of the ownership of a person or group
that attempts to acquire us on terms not approved by the Board of Directors and may have the effect
of deterring hostile takeover attempts. The effect of these anti-takeover provisions may be to
deter business combination transactions not approved by our Board of Directors, including
acquisitions that may offer a premium over the market price to some or all stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have not paid cash dividends on our common stock and do not expect to do so.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have never declared or paid a cash dividend on our common stock. We do not anticipate paying
any cash dividends on our common stock in the foreseeable future.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1B. UNRESOLVED STAFF COMMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. PROPERTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table contains a listing of our current property locations:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Ownership or</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Approximate</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Lease</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Location of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Square</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Expiration</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Property&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Use of Facility</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Footage</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Minnetonka, MN<BR>
(Corporate
headquarters)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research &#038; development,
sales, sales support,
marketing, and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">130,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Owned</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Eden Prairie, MN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing and warehousing
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">58,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Owned</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Waltham, MA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research &#038; development,
sales and sales support
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">13,424</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">September&nbsp;2010</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Austin, TX
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support,
marketing,
and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">6,563</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">February&nbsp;2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Davis, CA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support,
manufacturing and
warehousing
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">24,000</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">December&nbsp;2012</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Davis, CA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">Marketing, research &#038;
development, and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">11,200</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">September&nbsp;2008</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lindon, UT
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">Sales, marketing, research &#038;
development,
and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">10,686</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">December&nbsp;2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hong Kong, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing, and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">4,061</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">July&nbsp;2010</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beijing, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing, and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">2,372</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">December&nbsp;2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing, and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">1,251</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">June&nbsp;2008</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dortmund, Germany
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support,
marketing, and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">65,348</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Owned</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Breisach, Germany
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing, research &#038;
development, manufacturing,
warehousing and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">8,748</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">December&nbsp;2008</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Logrono, Spain
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, research &#038;
development, and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">3,228</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">January&nbsp;2017</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tokyo, Japan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">1,371</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">November&nbsp;2007</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the above locations, we perform research and development activities in various other
locations in the United States and sales activities in various other locations in Europe which are
not deemed to be principal locations. We believe that our facilities are adequate for our needs.
We are attempting to sell the Dortmund, Germany facility with a potential leaseback.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. LEGAL PROCEEDINGS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;19, 2002, a consolidated amended class action complaint was filed in the United
States District Court for the Southern District of New York asserting claims relating to the
initial public offering (IPO)&nbsp;of NetSilicon and approximately 300 other public companies. The
complaint names us as defendants along with NetSilicon, certain of its officers and certain
underwriters involved in NetSilicon&#146;s IPO, among numerous others, and asserts, among other
things, that NetSilicon&#146;s IPO prospectus and registration statement violated federal
securities laws because they contained material misrepresentations and/or omissions regarding
the conduct of NetSilicon&#146;s IPO underwriters in allocating shares in NetSilicon&#146;s IPO to the
underwriters&#146; customers. We believe that the claims against the NetSilicon defendants are
without merit and have defended the litigation vigorously. Pursuant to a stipulation between
the parties, the two named officers were dismissed from the lawsuit, without prejudice, on
October&nbsp;9, 2002.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. LEGAL PROCEEDINGS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2003, we elected to participate in a proposed settlement agreement with the plaintiffs
in this litigation. Had it been approved by the Court, this proposed settlement would have
resulted in a dismissal, with prejudice, of all claims in the litigation against us and
against any of the other issuer defendants who elected to participate in the proposed
settlement, together with the current or former officers and directors of participating
issuers who were named as individual defendants. This proposed settlement was conditioned on,
among other things, a ruling by the District Court that the claims against NetSilicon and
against the other issuers who had agreed to the settlement would be certified for class action
treatment for purposes of the proposed settlement, such that all investors included in the
proposed classes in these cases would be bound by the terms of the settlement unless an
investor opted to be excluded from the settlement in a timely and appropriate fashion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;5, 2006, the U.S. Court of Appeals for the Second Circuit issued a decision in
<U>In re Initial Public Offering Securities Litigation</U> that six purported class action
lawsuits containing allegations substantially similar to those asserted against us could not
be certified as class actions due, in part, to the Appeals Court&#146;s determination that
individual issues of reliance and knowledge would predominate over issues common to the
proposed classes. On January&nbsp;8, 2007, the plaintiffs filed a petition seeking rehearing
<U>en</U> <U>banc</U> of this ruling. On April&nbsp;6, 2007 the Court of Appeals denied the
plaintiffs&#146; petition for rehearing of the Court&#146;s December&nbsp;5, 2006 ruling. The Court of
Appeals, however, noted that the plaintiffs remained free to ask the District Court to certify
classes different from the ones originally proposed which might meet the standards for class
certification that the Court of Appeals articulated in its December&nbsp;5, 2006 decision. The
plaintiffs have since moved for certification of different classes in the District Court, and
that motion remains pending.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In light of the Court of Appeals&#146; December&nbsp;5, 2006 decision regarding certification of the
plaintiffs&#146; claims, the District Court entered an order on June&nbsp;25, 2007 terminating the
proposed settlement between the plaintiffs and the issuers, including NetSilicon. Because any
possible future settlement with the plaintiffs, if a settlement were ever to be negotiated and
ultimately agreed to, would involve the certification of a class action for settlement
purposes, the impact of the Court of Appeals&#146; rulings on the possible future settlement of the
claims against NetSilicon cannot now be predicted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Given that the proposed settlement has been terminated, we intend to continue to defend the
litigation vigorously. The litigation process is inherently uncertain and unpredictable,
however, and there can be no guarantee as to the ultimate outcome of this pending lawsuit. We
maintain liability insurance for such matters and expect that the liability insurance will be
adequate to cover any potential unfavorable outcome, less the applicable deductible amount of
$250,000 per claim. As of September&nbsp;30, 2007, we have accrued a liability for the deductible
amount of $250,000 which we believe reflects the amount of loss that is probable. In the
event we have losses that exceed the limits of the liability insurance, such losses could have
a material effect on our business and our consolidated results of operations or financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the matter discussed above, in the normal course of business, we are subject to
various claims and litigation, including patent infringement and intellectual property claims.
Our management expects that these various claims and litigation will not have a material
adverse effect on our consolidated results of operations or financial condition.
</DIV>
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There were no matters submitted to the vote of security holders during the fourth quarter of the
fiscal year ended September&nbsp;30, 2007.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART II</B>
</DIV>

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 5.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Stock Listing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Common Stock trades under the symbol &#147;DGII.&#148; Since July&nbsp;3, 2006 our Common Stock has traded on
the NASDAQ Global Select Market tier of the NASDAQ Stock Market LLC and prior to that time was
traded on the NASDAQ National Market tier. On November&nbsp;26, 2007, the number of holders of our
Common Stock was approximately 9,506, consisting of 250 record holders and approximately 9,256
stockholders whose stock is held by a bank, broker or other nominee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">High and low sale prices for each quarter during the years ended September&nbsp;30, 2007 and 2006, as
reported on the NASDAQ Stock Market LLC, were as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Stock Prices</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">First</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Second</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Third</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Fourth</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16.71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.12</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">First</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Second</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Third</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Fourth</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.11</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividend Policy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have never paid cash dividends on our Common Stock. Our Board of Directors presently intends to
retain all earnings for use in our business and does not anticipate paying cash dividends in the
foreseeable future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We do not have a Dividend Reinvestment Plan or a Direct Stock Purchase Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Issuer Repurchases of Equity Securities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We did not repurchase any of our equity securities in the fourth quarter of the fiscal year ended
September&nbsp;30, 2007. We have an outstanding remaining balance of 1,000,000 shares available for
repurchase.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 5.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Performance Evaluation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The graph below compares the total cumulative stockholders&#146; return on our Common Stock for the
period from the close of the Nasdaq Stock Market &#150; U.S. Companies on September&nbsp;30, 2002 to
September&nbsp;30, 2007, the last day of fiscal 2007, with the total cumulative return on the CRSP Total
Return Index for the Nasdaq Stock Market &#150; U.S. Companies (the &#147;CRSP Index&#148;) and the CRSP Index for
Nasdaq Telecommunications Stocks (the &#147;Peer Index&#148;) over the same period. We have determined that
our line of business is mostly comparable to those companies in the Peer Index. The index level
for the graph and table was set to $100 on September&nbsp;30, 2002, for our Common Stock, the CRSP Index
and the Peer Index and assumes the reinvestment of all dividends.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="c22023c2202301.gif" alt="(PERFORMANCE GRAPH)">
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY02</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY03</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY04</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY05</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY06</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY07</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-15px">Digi International Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">338.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">585.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">691.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">729.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-15px">CRSP Index</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194.81</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230.57</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-15px">Peer Index</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267.98</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. SELECTED FINANCIAL DATA</B>
</DIV>


<DIV align="left" style="font-size: 10pt">(In thousands except per common share amounts and number of employees)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">For the fiscal years ended September 30</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">102,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">77,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">71,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,968</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,944</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(600</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquired in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain from forgiveness of grant payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(553</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,273</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">296</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and cumulative effect
of accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision (benefit) (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before cumulative effect of accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,592</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cumulative effect of accounting change (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,866</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(37,274</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per common share, basic:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income before cumulative effect of accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cumulative effect of accounting change (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.08</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (loss)&nbsp;per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.77</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per common share, diluted
Income before cumulative effect of accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cumulative effect of accounting change (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.07</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (loss)&nbsp;per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.76</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance sheet data as of September&nbsp;30:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Working capital (total current assets less
total current liabilities)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">115,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">83,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">69,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">82,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">251,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">225,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">177,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">150,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">132,540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">222,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">193,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">153,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">127,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">105,863</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Book value per common share (stockholders&#146; equity
divided by outstanding shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of employees as of September 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">358</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Effective October&nbsp;1, 2005, we adopted SFAS No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (SFAS
No.&nbsp;123R), using the
modified prospective method of application. Total compensation cost for stock-based payment
arrangements totaled $3.0&nbsp;million
($2.0&nbsp;million after tax) or $.08 per diluted share during fiscal year 2007, and $2.3&nbsp;million
($1.5&nbsp;million after tax) or $.06 per diluted
share during fiscal year 2006. Prior to the adoption of this Statement, no compensation cost
for stock-based payment arrangements
was recognized in earnings. Refer to Note 9 to our Consolidated Financial Statements for
further discussion.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>In fiscal 2007, we reversed income tax reserves of $3.6&nbsp;million associated with the closing of
a German tax audit and the statutory
closing of a prior U.S. federal and state tax year. We also recorded other discrete tax
benefits of $0.7&nbsp;million in fiscal 2007,
(see Note 8 to our consolidated financial statements). In fiscal 2006 and 2005, we reversed
income tax reserves of $1.6&nbsp;million
and $5.7&nbsp;million, respectively, primarily due to a settlement of tax audits with the French
government in 2006 and the Internal
Revenue Service in 2005. In 2003, we reversed a valuation allowance, resulting in an income
tax benefit of $1.4&nbsp;million, based on
anticipated future taxable income generated by our German operations.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>We adopted the provisions of FAS 142 as of October&nbsp;1, 2002 at which time we determined that
there was a total goodwill impairment or
$43.9&nbsp;million. The charge was attributable primarily to an impairment of the carrying value of
goodwill related to the acquisition of
Net Silicon of $38.4&nbsp;million and goodwill related to the Central Data Corporation and INXTECH
acquisitions of $3.5&nbsp;million and
$2.0&nbsp;million, respectively.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>OVERVIEW</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We operate in the communications technology industry, which is characterized by rapid
technological advances and evolving industry standards. The market can be significantly
affected by new product introductions and marketing activities of industry participants. We
compete for customers on the basis of existing and planned product features, company
reputation, brand recognition, technical support, relationships with partners, quality and
reliability, product development capabilities, price and availability. We help customers
connect, monitor, and control local or remote electronic devices over a network or via the
Internet. We continue to leverage a common core technology base to develop and provide
innovative connectivity solutions to our customers. Core technology is used across product
lines to provide additional functionality for customers, allowing them to get to market with
network-enabled devices faster. We have positioned ourselves in the growing market of
integrated hardware and software connectivity solutions to network-enable the coming
generation of intelligent devices in commercial applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenues consist of products that are in non-embedded and embedded product groupings. The
non-embedded products include serial cards, serial servers, USB connected products, cellular
routers, cellular gateway products, network management software, console servers, remote
display products, wireless communications adapters, and cameras and sensors. Embedded
products include chips, modules, single-board computers, Network Interface Cards (NICs) and
software and development tools. Our non-embedded serial cards and our embedded NICs are in
the mature phase of their product life cycles. Our strategy is to focus on key applications,
customers and markets to efficiently manage the migration from products that are in the mature
phase of their product life cycles to other newer technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2007, we announced a new solution category called &#147;Drop-in Networking.&#148; Drop-in Networking
provides end-to-end wireless access to electronic devices in places where wires will not work or
cannot be used. Incorporating products from both our embedded and non-embedded categories,
including modules, wireless communications adapters, cellular routers, gateways, sensors, and
network management software, Drop-in Networking holds the potential to economically extend network
connectivity to millions of new devices. For applications in energy management, building control,
manufacturing, supply chain management and a host of others, Drop-in Networking products provide a
non-intrusive way to connect devices anywhere they reside. Devices are being connected that were
previously not networked, such as irrigation controls for farms and golf courses, fish farm
monitoring equipment and fitness equipment to name a few. Our innovations in Drop-in Networking
enable our customers to differentiate their products, provide better customer service, and
frequently create new revenue streams.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2007, we experienced a significant increase in cash incentive compensation expenses
compared to fiscal 2006 due to higher achievement of our financial&nbsp;incentive compensation targets.&nbsp;
Executive cash incentive compensation is principally based on earnings before taxes, depreciation
and amortization (EBTDA), revenue and cash balances, while employee cash incentive compensation is
tied to EBTDA, revenue, and achievement of individual goals.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED RESULTS OF OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth selected information from our Consolidated Statements of Operations,
expressed as a percentage of net sales and as a percentage of change from year-to-year for the
years indicated.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">% Increase (decrease)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">Compared</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">Compared</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">($ in thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">to 2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">to 2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">19.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">15.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales (exclusive of amortization of purchased
and core technology shown separately below) (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">In-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/M</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/M</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/M</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">77.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37.1) </TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 1pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 1pt; margin-left:15px; text-indent:-15px">N/M means not meaningful</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
 <TR style="font-size: 3pt">
<td>&nbsp;</td>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>As a result of adopting FAS No.&nbsp;123R as of October&nbsp;1, 2005 on a modified prospective basis,
stock-based compensation expense (pre-tax)
is included in the consolidated results of operations for the years ended September&nbsp;30, 2007
and 2006 as follows (in thousands):</TD>
</TR>

</TABLE>


<DIV align="right">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="96%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">694</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,289</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NET SALES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales were $173.3&nbsp;million in fiscal 2007 compared to $144.7&nbsp;million in fiscal 2006, an increase
of $28.6&nbsp;million, or 19.8%. Net sales of MaxStream-branded products were $20.6&nbsp;million in fiscal
2007 compared to $3.2&nbsp;million in fiscal 2006, an increase of $17.4&nbsp;million, which includes two
months of revenue from the date of acquisition of July&nbsp;27, 2006. Net sales of all other products,
except serial cards and NICs, increased by $19.7
million, or 18.0%. Net sales of serial cards, which are a non-embedded product, and NICs, which
are an embedded product, decreased by $8.5&nbsp;million, or 26.9%. Serial cards are in a mature market
that is declining at a rate of approximately 15% &#151; 20% per year. Serial cards net sales
represented 12.5% of total net sales for fiscal 2007. NICs are at the end of their product life
cycle and represented less than 1% of our net sales for fiscal 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The net sales increase from 2005 to 2006 was $19.5&nbsp;million, or 15.5%. Net sales of products
acquired as a result of the FS Forth, Rabbit, and MaxStream acquisitions, which are primarily
embedded products, increased $27.5&nbsp;million in fiscal 2006 compared to fiscal 2005. Net sales of
all other products, except serial cards and NICs, increased by $7.8&nbsp;million, or 12.2% in fiscal
2006. Net sales of serial cards, which are a non-embedded
product, and NICs, which are an embedded product, decreased by $15.8&nbsp;million, or 33.4% as serial
cards are declining and NICs approach the end of their product life cycle.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NET SALES (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A shift in the customer and product mix has resulted in a slight decrease in our average selling
price of our products as we are selling more embedded products as a percentage of total net sales.
Embedded products generally have a lower average selling price than non-embedded products.
Fluctuation in foreign currency rates compared to the&nbsp;prior year&#146;s rates had a favorable impact on
net sales of $2.3&nbsp;million in fiscal 2007, an unfavorable impact on net sales of $0.6&nbsp;million in
fiscal 2006 and a favorable impact on net sales of $0.7&nbsp;million in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Net Sales by Products</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenue is generated from two product groupings: non-embedded and embedded. The following
table presents our revenue by product grouping:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Net Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">% of Net Sales</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">($ in millions)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-embedded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">98.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">87.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">57.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">59.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">69.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Embedded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">30.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>Non-Embedded</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Our non-embedded products net sales increased $12.2&nbsp;million, or 14.1% in fiscal 2007 compared to
fiscal 2006 due to an increase in sales of serial servers, USB connected products, wireless
communication adapters and gateways, partially offset by the continuing sales decline of serial
cards.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Our non-embedded products net sales decreased $0.8&nbsp;million in fiscal 2006 compared to fiscal
2005. Product introductions generated an increase in net sales of network connected products,
USB and gateways, partially offsetting the continuing sales decline of serial cards.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>Embedded</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Embedded products net sales increased $16.4&nbsp;million, or 28.2% in fiscal 2007 compared to fiscal
2006. An increase in net sales of embedded modules and single-board computers was partially
offset by the continued decline of the NIC sales.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Embedded products net sales increased $20.3&nbsp;million, or 53.7% in fiscal 2006 compared to fiscal
2005. Net sales of Rabbit, FS Forth and MaxStream-embedded products increased $25.9&nbsp;million in
fiscal 2006 compared to fiscal 2005. Introduction of new embedded modules and microprocessors,
as well as new customers reaching production volumes, partially offset the continuing decline of
NIC sales in fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Net Sales by Distribution Channels</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenue is generated from these distribution channels: Direct / OEMs and distributors. The
following table presents our revenue by channel:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Net Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">% of Net Sales</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">($ in millions)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Direct / OEM Channel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">88.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">48.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distribution Channel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">48.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">49.9</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NET SALES (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The increase in Direct / OEM channel net sales during the last three fiscal years was primarily due
to our continued enhancement of our product offerings through the acquisitions of Rabbit and
MaxStream, whose customers are primarily OEMs, and our decision to sell directly to certain
customers rather than through the distribution channel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The increase in the distribution channel net sales over the last three fiscal years was primarily
due to our continued focus on maintaining our channel strategy, which includes employing additional
channel partners and releasing complementary products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Net Sales by Geographic Area</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenue by geographic location of our customers is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Net Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">% of Net Sales</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">($ in millions)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">61.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">35.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">64.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">57.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The increase in net sales in the United States was primarily due to incremental net sales resulting
from the MaxStream and Rabbit acquisitions, continued market penetration and new customer volume
increases.&nbsp; Net sales in the United States, as&nbsp;a percent of total net sales, has increased&nbsp;over the
past two years, while the percentage of international net sales as a percent of total net sales has
decreased.&nbsp; This is a result of the customer base for MaxStream and Rabbit being comprised of a
larger proportion of United States customers compared to international customers.&nbsp; However, we
expect that in the future our international net sales will grow more quickly as a percent of total
net sales than our United States net sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>GROSS PROFIT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2007 Compared to 2006</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gross profit margin for 2007 was 52.7% compared to 53.6% for 2006. The decrease in gross profit
margin is primarily a result of product and customer mix changes related to the increase in
embedded net sales. This was offset by an increase in gross profit margin of 0.7% due to reduced
amortization of purchased and core technology since some of this technology became fully amortized
in 2007. Amortization of purchased and core technology was $4.5&nbsp;million or 2.6% in fiscal 2007 as
compared to $4.8&nbsp;million or 3.3% in fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2006 Compared to 2005</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gross profit margin for 2006 was 53.6% compared to 57.1% in 2005. The decrease in gross profit
margin was primarily due to product mix changes among products within both the embedded and
non-embedded product groups, as well as higher manufacturing expenses. Amortization of purchased
and core technology was $4.8&nbsp;million or 3.3% in fiscal 2006 as compared to $4.2&nbsp;million or 3.3% in
fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>OPERATING EXPENSES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2007 Compared to 2006</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating expenses were $71.0&nbsp;million in 2007, an increase of $6.7&nbsp;million or 10.5%, compared to
operating expenses of $64.3&nbsp;million in 2006. The incremental operating expenses resulting from the
acquisition of MaxStream on July&nbsp;27, 2006 provided an additional $4.6&nbsp;million of operating
expenses, which was offset by a $2.0&nbsp;million charge for in-process research and development in the
fourth quarter of fiscal 2006 in
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>OPERATING EXPENSES (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
connection with the acquisition of MaxStream. Compensation-related expenses, including salaries and cash
incentive compensation and stock-based compensation, increased by $4.5&nbsp;million in fiscal 2007 as
compared to fiscal 2006 due to an increase in employees, merit increases and a higher level of cash
incentive compensation achievement based on revenue and other defined performance measures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales and marketing expenses were $33.5&nbsp;million in 2007, an increase of $4.9&nbsp;million or 17.2%,
compared to sales and marketing expenses of $28.6&nbsp;million in 2006. The incremental expenses
related to the MaxStream acquisition increased sales and marketing expenses by $2.2&nbsp;million. In
addition, sales and marketing expenses increased by $2.4&nbsp;million for compensation-related expenses
and by $0.3&nbsp;million for miscellaneous other sales and marketing expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expenses were $24.2&nbsp;million in 2007, an increase of $3.3&nbsp;million or 15.9%,
compared to research and development expenses of $20.9&nbsp;million in 2006. The incremental research
and development expenses related to the MaxStream acquisition accounted for $1.7&nbsp;million of the
increase. The remaining increase of $1.6&nbsp;million is primarily a result of compensation-related
expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">General and administrative expenses were $13.3&nbsp;million in 2007, an increase of $0.5&nbsp;million or
4.0%, compared to general and administrative expenses of $12.8&nbsp;million in 2006. General and
administrative expenses increased $0.7&nbsp;million due to the incremental expenses related to the
MaxStream acquisition, $0.5&nbsp;million due to compensation-related expenses, $0.3&nbsp;million due to bad
debt expense, $0.2&nbsp;million due to the gain on sale of intellectual property sold in fiscal 2006 and
the remaining $0.4&nbsp;million is due to maintenance expense and other related general and
administrative expenses. Professional fees decreased by $1.1&nbsp;million in fiscal 2007 as compared to
fiscal 2006, primarily related to reduced legal fees as well as reduced consulting fees. We also
recorded a $0.5&nbsp;million gain related to the sale of land in the fourth quarter of fiscal 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recorded a $2.0&nbsp;million charge in fiscal 2006 for in-process research and development expenses
related to the acquisition of MaxStream.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2006 Compared to 2005</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating expenses were $64.3&nbsp;million in 2006, an increase of $9.8&nbsp;million or 17.9%, compared to
operating expenses of $54.5&nbsp;million in 2005. The acquisition of MaxStream resulted in $3.1&nbsp;million
of additional operating expenses of which $2.0&nbsp;million is related to in-process research and
development. Fiscal 2006 also includes twelve months of operating expenses for Rabbit and FS
Forth, acquired in the third quarter of fiscal 2005, resulting in incremental operating expenses of
$7.5&nbsp;million (of which $0.7&nbsp;million is related to identifiable intangibles amortization expense) in
2006. As a result of the adoption of FAS 123R on October&nbsp;1, 2005, we recorded $2.2&nbsp;million in
stock-based compensation expense in fiscal 2006. Operating expense savings of $3.0&nbsp;million were
realized in fiscal 2006 compared to fiscal 2005, primarily due to savings in compensation-related
expenses, contract labor and professional fees.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales and marketing expenses were $28.6&nbsp;million in 2006, an increase of $2.3&nbsp;million or 8.6%,
compared to sales and marketing expenses of $26.3&nbsp;million in 2005. Sales and marketing expenses
increased by an incremental $2.9&nbsp;million due to the acquisitions of MaxStream, Rabbit and FS Forth
and by an incremental $0.7&nbsp;million due to stock-based compensation expense. These increases were
offset by a decrease in compensation-related expenses of $1.1&nbsp;million due to fewer employees and
decreased commissions in fiscal 2006 compared to fiscal 2005.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>OPERATING EXPENSES (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expenses were $20.9&nbsp;million in 2006, an increase of $4.4&nbsp;million or 26.2%,
compared to research and development expenses of $16.5&nbsp;million in 2005. Research and development
expenses increased in fiscal 2006 compared to fiscal 2005 primarily due to incremental research and
development expenses of $3.8&nbsp;million due to the acquisitions of MaxStream, Rabbit and FS Forth and
by an incremental $0.5&nbsp;million due to stock-based compensation expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">General and administrative expenses were $12.8&nbsp;million in 2006, an increase of $1.4&nbsp;million or
12.9%, compared to general and administrative expenses of $11.4&nbsp;million in 2005. The increase was
due to incremental expenses of $1.9&nbsp;million (of which $0.7&nbsp;million is related to identifiable
intangibles amortization expense) related to the acquisitions of MaxStream, Rabbit and FS Forth and
by an incremental $1.0&nbsp;million due to stock-based compensation expense. The aforementioned
increases in expenses were offset by savings of $1.2&nbsp;million in compensation-related expenses,
professional fees and depreciation expense due to certain assets becoming fully depreciated.
Intellectual property associated with a prior acquisition was sold for $0.2&nbsp;million and was
recorded as a reduction of expense in general and administrative expenses in fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In-process research and development expenses associated with the acquisition of MaxStream were $2.0
million in 2006, compared to in-process research and development expenses of $0.3&nbsp;million in 2005
associated with the acquisition of Rabbit in 2005 (see Note 2 to our Consolidated Financial
Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MaxStream, Inc.</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;27, 2006, we acquired MaxStream, Inc. (MaxStream), a privately held corporation. The total
purchase price of $40.5&nbsp;million included $19.8&nbsp;million in cash (excluding cash acquired of $3.7
million) and $20.7&nbsp;million in common stock, in exchange for all outstanding shares of MaxStream&#146;s
preferred and common stock and outstanding stock options. We did not replace MaxStream&#146;s
outstanding options with Digi options.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time of acquisition, MaxStream had development projects in process associated with the
XStream Gen. 2, X. Eleven, Mesh Firmware, Xbee Zigbee Firmware and Xplore products. We estimated
that $2.0&nbsp;million of the purchase price represented the fair value of acquired in-process research
and development related to the products listed below (in thousands) that were under development,
had a measurable percentage completed and a documented expected life, had not yet reached
technological feasibility, and had no alternative future uses. This amount was expensed as a
non-tax-deductible charge upon consummation of the acquisition.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">XStream Gen. 2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">X. Eleven</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mesh Firmware</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xbee Zigbee Firmware</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xplore</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Xplore and Mesh Firmware projects were released during fiscal year 2007. The XStream Gen. 2
along with the X. Eleven and Xbee Zigbee Firmware projects are expected to be released in fiscal
year 2008. These estimates are subject to change, given the uncertainties of the development
process, and no assurance can be given that deviations from these estimates will not occur. We
anticipate that the projected revenue from these projects will be in line with original
projections.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Rabbit Semiconductor Inc.</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;26, 2005, we acquired Rabbit, formerly Z-World, Inc., a privately held corporation for a
purchase price of $49.3&nbsp;million in cash (excluding cash acquired of $0.4&nbsp;million and assumption of
$1.3&nbsp;million in debt).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time of acquisition, Rabbit had a development project in process for the Rabbit 4000
microprocessor. The project involved the design and development of a next-generation
microprocessor that would have increased code execution speed, reduced code size, added security
features, and integrated Ethernet capabilities.
We estimated that $0.3&nbsp;million of the purchase price represented the fair value of acquired
in-process research and development related to the Rabbit 4000 microprocessor that had not yet
reached technological feasibility and had no alternative future uses. This amount was expensed as
a non-tax-deductible charge upon consummation of the acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We released the Rabbit 4000 microprocessor in March&nbsp;2006. We anticipate that the projected revenue
from the Rabbit 4000 microprocessor will be in line with original projections. These estimates are
subject to change and no assurance can be given that deviations from these estimates will not
occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>OTHER INCOME, NET</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other income, net was $3.4&nbsp;million in fiscal 2007, an increase of $1.4&nbsp;million compared to $2.0
million in fiscal 2006. During fiscal 2007, we realized $3.5&nbsp;million of interest income on
marketable securities and cash and cash equivalents compared to $2.4&nbsp;million during fiscal 2006.
The increase in interest income was due to higher average investment balances and higher average
interest rates. The average investment balance during fiscal 2007 was $66.7&nbsp;million compared to
$52.6&nbsp;million for fiscal 2006. We earned an average interest rate of 5.1% during fiscal 2007
compared to 4.3% for fiscal 2006. Interest expense was $0.1&nbsp;million for fiscal 2007 and related to
our capital leases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total other income, net was $2.0&nbsp;million in fiscal 2006 compared to $1.0&nbsp;million in fiscal 2005.
We realized interest income on marketable securities and cash and cash equivalents of $2.4&nbsp;million
in fiscal 2006 compared to $1.6&nbsp;million in fiscal 2005. The increase in interest income was
primarily due to higher average interest rates in fiscal 2006 compared to fiscal 2005, which was
partially offset by a decrease in the average investment balance. We earned an average interest
rate of approximately 4.3% during fiscal 2006 compared to approximately 2.5% for fiscal 2005. The
invested balance averaged $52.6&nbsp;million during fiscal 2006 compared to $64.8&nbsp;million during fiscal
2005. Interest expense was $0.2&nbsp;million in fiscal 2006 primarily related to interest expense on
the $5.0&nbsp;million short-term loan that was used to finance the MaxStream acquisition and interest on
capital leases. The short-term loan was paid in full in August&nbsp;2006. Other expense was $0.2
million in fiscal 2006 and $0.5&nbsp;million in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>INCOME TAXES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our effective income tax rate was 16.7%, 27.2% and 1.8% for fiscal 2007, 2006 and 2005,
respectively. During fiscal 2007, we reversed $3.6&nbsp;million in income tax reserves associated with
the closing of a German tax audit and the statutory closing of a prior U.S. federal and state tax
year. We also recorded other discrete tax benefits of $0.7&nbsp;million primarily related to the filing
of U.S. amended tax returns, enactment of the extension of the research and development tax credit,
and adjustments to actual for items reported on the tax returns filed for fiscal 2006. The
aforementioned income tax benefits resulting from the reversal of income tax reserves and other
discrete tax benefits reduced the effective tax rate by 18.2&nbsp;percentage points in fiscal 2007.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INCOME TAXES (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2006, we recorded $1.6&nbsp;million in discrete tax benefits, primarily related to an
audit of prior fiscal years which was settled with the French government in 2006. We had
established excess tax reserves that were no longer required as a result of the settlement. We
recorded an income tax benefit as a result of the reversal of the excess tax reserves related to
this settlement. The aforementioned discrete income tax benefits reduced the effective tax rate by
10.4&nbsp;percentage points in fiscal 2006. These tax benefits were partially offset by non-deductible
MaxStream acquired in-process research and development expense, which increased the effective tax
rate in fiscal 2006 by 4.6&nbsp;percentage points (see reconciliation of the statutory income tax rate
to the effective tax rate in Note 8 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2005, the Congressional Joint Committee on Taxation approved a settlement with the
Internal Revenue Service on an audit of certain of our prior fiscal years&#146; income tax returns. We
had established tax reserves in excess of the ultimate settled amounts. As a result, we recorded
an income tax benefit of $5.7&nbsp;million in fiscal 2005 representing the excess of our income tax
reserves over the amount paid. The income tax benefit of $5.7&nbsp;million reduced the effective tax
rate by 31.6&nbsp;percentage points in fiscal 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The effective tax rates for fiscal 2007, 2006 and 2005 are lower than the U.S. statutory rate of
35.0% primarily due to the aforementioned income tax benefits and the utilization of income tax
credits and exclusions for extraterritorial income in all years and the domestic production
activities deduction in fiscal 2007 and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2007, we had United States federal tax credit carryforwards of $1.1&nbsp;million
which expire at various dates through 2027. We also had foreign tax credit carryforwards at
September&nbsp;30, 2007 of $0.2&nbsp;million the majority of which carry forward indefinitely.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are required to assess the realizability of our deferred tax assets and the need for a valuation
allowance against those assets in accordance with Statement of Financial Accounting Standards No.
109 &#147;Accounting for Income Taxes&#148; (FAS 109). We have concluded that it is more likely than not
that the remaining deferred tax assets will be realized based on future projected taxable income
and the anticipated future reversal of deferred tax liabilities, and therefore no valuation
allowance has been established at September&nbsp;30, 2007. The amount of the net deferred tax assets
realized, however, could vary if there are differences in the timing or amount of future reversals
of existing deferred tax liabilities or changes in the amounts of future taxable income. If our
future taxable income projections are not realized, a valuation allowance would be required, and
would be reflected as income tax expense at the time that any such change in future taxable income
is determined.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>INFLATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Management believes inflation has not had a material effect on our operations or on our financial
position.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>LIQUIDITY AND CAPITAL RESOURCES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have financed our operations principally with funds generated from operations. We had cash,
cash equivalents and marketable securities, including long-term marketable securities, of $87.6
million, $58.9&nbsp;million and $50.2&nbsp;million at September&nbsp;30, 2007, 2006 and 2005, respectively. Our
working capital was $115.7&nbsp;million, $83.3&nbsp;million and $70.0&nbsp;million at September&nbsp;30, 2007, 2006 and
2005, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%"><B>Consolidated Statement of Cash Flow Highlights (in thousands)</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,056</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,715</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,067</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash
and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(107</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,538</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash provided by operating activities was $26.4&nbsp;million during fiscal 2007 compared to net
cash provided by operating activities of $20.4&nbsp;million during fiscal 2006, a net increase of
$6.0&nbsp;million. This net increase is primarily due to an increase of $8.7&nbsp;million of net income
and a reduction of $3.5&nbsp;million for non-cash items, primarily related to deferred income
taxes, in-process research and development charges and gain on sale of land during fiscal
2007, offset by increases primarily related to stock-based compensation and provisions for bad
debts. Changes in working capital increased cash flows by $0.8&nbsp;million resulting from
increases of $2.4&nbsp;million from changes in accounts receivable, income taxes payable, accounts
payable and other accrued expenses offset by a reduction in cash flows of $1.6&nbsp;million due to
inventories as additional material purchases and production builds in order to fulfill order
demand. Net cash provided by operating activities was $20.4&nbsp;million during fiscal 2006
compared to net cash provided by operating activities of $18.1&nbsp;million during fiscal 2005, an
increase of $2.3&nbsp;million. Changes in working capital generated a $4.7&nbsp;million increase in net
cash provided by operating activities, resulting from changes in income taxes payable and
accounts receivable, partially offset by reductions resulting from inventory and accounts
payable. Changes in tax benefits related to stock-based compensation reduced cash provided by
operating activities by $2.8&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash used in investing activities was $28.7&nbsp;million during fiscal 2007 compared to net cash
used in investing activities of $23.2&nbsp;million and $30.1&nbsp;million during fiscal 2006 and fiscal 2005,
respectively. Net purchases of marketable securities were $26.0&nbsp;million for fiscal 2007 and $6.0
million for fiscal 2006, while net settlements from marketable securities were $25.0&nbsp;million in
fiscal 2005. Proceeds from the sale of property and equipment amounted to $1.0&nbsp;million during
fiscal 2007, while purchases of property, equipment, improvements and certain other intangible
assets were $2.9&nbsp;million for fiscal 2007 and $1.3&nbsp;million in each of fiscal 2006 and 2005. We also
used $0.8&nbsp;million in fiscal 2007 for contingent purchase price payments related to acquisitions.
Proceeds from the sale of intellectual property were $0.2&nbsp;million in fiscal 2006. During fiscal
2006, we paid $16.1&nbsp;million in cash (net of cash acquired of $3.7&nbsp;million) for the acquisition of
MaxStream and, during fiscal 2005, we paid $48.9&nbsp;million (net of cash acquired of $0.4&nbsp;million) and
$4.8&nbsp;million for the acquisitions of Rabbit and FS Forth, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2007, we generated $4.8&nbsp;million from financing activities primarily due to $5.2
million of cash received from the exercise of stock options and employee stock purchase plan
transactions. We used $0.4&nbsp;million for capital lease obligations. During fiscal 2006, we

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->32<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">generated
$5.6&nbsp;million from financing activities primarily due to $6.1&nbsp;million of cash received from the exercise of stock options and employee
stock purchase plan transactions. This was offset by $0.5&nbsp;million of cash used for capital lease
obligations. We entered into a $5.0&nbsp;million short-term loan agreement during the fourth quarter of
fiscal 2006 to finance the MaxStream acquisition and repaid the loan in the same quarter. We
generated $4.9&nbsp;million from financing activities in fiscal 2005 primarily due to cash received from
the exercise of stock options and employee stock purchase plans of $6.3&nbsp;million. We entered into a
$21.0&nbsp;million short-term loan during the third quarter of fiscal 2005 to finance the Rabbit
acquisition. We determined that it was more economical to borrow funds to finance the Rabbit
acquisition than to liquidate marketable securities prior to their scheduled maturities. This
short-term loan was repaid in fiscal 2005. During fiscal 2005, we used $1.3&nbsp;million to fully pay
an outstanding balance on a revolving line of credit that was assumed as a result of the Rabbit
acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our management believes that current financial resources, cash generated from operations and our
potential capacity for debt and/or equity financing will be sufficient to fund our business
operations for the next twelve months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following summarizes our contractual obligations at September&nbsp;30, 2007. However, this table
excludes a payment of $1.2&nbsp;million on October&nbsp;1, 2007 as contingent consideration related to the FS
Forth transaction based on the achievement of the milestones identified in the merger agreement.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #000000">Payments due by fiscal period</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Less than</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">(in thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Total</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">1 year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">1-3 years</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">3-5 years</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Thereafter</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD colspan="3" align="right" style="border-top: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total contractual cash obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The lease obligations summarized above relate to various operating lease agreements for office
space and equipment and have not been reduced by minimum sublease rentals of $0.5&nbsp;million due in
the future under noncancellable subleases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>FOREIGN CURRENCY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The majority of our foreign currency transactions are executed in the Euro or Japanese Yen. As a
result, we are exposed to foreign currency transaction risk associated with certain sales
transactions being denominated in Euros or Japanese Yen and foreign currency translation risk as
the financial position and operating results of our foreign subsidiaries are translated into U.S.
Dollars for consolidation. We have not implemented a hedging strategy to reduce foreign currency
risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2007, we had approximately $61.2&nbsp;million of net sales related to foreign customers including
export sales, of which $30.1&nbsp;million was denominated in foreign currency, predominately the Euro.
During 2006 and 2005, we had approximately $55.9&nbsp;million and $53.2&nbsp;million, respectively, of net
sales to foreign customers including export sales, of which $23.3&nbsp;million and $18.6&nbsp;million,
respectively, were denominated in foreign currency, predominately the Euro. In future periods, a
significant portion of sales will continue to be made in Euros.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>RECENT ACCOUNTING DEVELOPMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2007, the Financial Accounting Standards Board (&#147;FASB&#148;) ratified Emerging Issues Task
Force (&#147;EITF&#148;) Issue No.&nbsp;07-3, &#147;Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development Activities&#148; (&#147;EITF No.&nbsp;07-3&#148;).
EITF No.&nbsp;07-3 requires that nonrefundable advance payments for goods and services that will be
used or rendered for future research and development activities be deferred and capitalized
and not recognized as expense until the research and development activities are performed.
EITF No.&nbsp;07-3 is applicable prospectively to new contractual arrangements entered into
beginning in our fiscal year 2009. We are currently evaluating the impact that the adoption
of EITF No.&nbsp;07-3 will have, but do not believe it will have a material effect on our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2007, the FASB issued FASB Statement No.&nbsp;159, &#147;The Fair Value Option for Financial
Assets and Financial Liabilities &#150; Including an Amendment of FASB Statement No.&nbsp;115&#148; (&#147;SFAS
159&#148;). This Statement provides companies with an option to measure, at specified election
dates, many financial instruments and certain other items at fair value that are not currently
measured at fair value. A company that adopts SFAS 159 will report unrealized gains and
losses on items for which the fair value option has been elected in earnings at each
subsequent reporting date. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. This Statement is
effective for fiscal years beginning after November&nbsp;15, 2007, which for us is the first
quarter of fiscal 2009. We are currently evaluating the impact that SFAS 159 could have on
our consolidated financial statements, if we decide to adopt, but do not expect it to have a
material impact on our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements&#148; (&#147;FAS&nbsp;157&#148;). FAS&nbsp;157
defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of FAS&nbsp;157 are effective for our fiscal year beginning October&nbsp;1, 2008 for financial
assets and liabilities and for non-financial assets and liabilities beginning October&nbsp;1, 2009. We
are currently evaluating the impact of the provisions of FAS&nbsp;157 on our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In July&nbsp;2006, the FASB issued Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in Income
Taxes &#150; an interpretation of FASB Statement No.&nbsp;109&#148; (&#147;FIN 48&#148;). FIN 48 prescribes a
recognition threshold and measurement process for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Additionally,
FIN 48 provides guidance on the derecognition, classification, accounting in interim periods
and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48
are effective for us beginning October&nbsp;1, 2007. We anticipate that the effect of the adoption
of FIN 48 on our consolidated financial statements will be immaterial. However, we expect to
reclassify substantially all of our unrecognized tax benefits from current to non-current
liabilities, since payment of cash is not anticipated within one year of the balance sheet
date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, the disclosure of contingent assets and liabilities and the
values of purchased assets and assumed liabilities in acquisitions. We base our estimates on
historical experience and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->34<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe the following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">REVENUE RECOGNITION
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenues are derived primarily from the sale of embedded and non-embedded products to our
distributors and Direct (end-user) / OEM customers, and to a small extent from the sale of software
licenses, fees associated with technical support, training, professional and engineering services,
and royalties. We recognize product revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, collectibility is reasonably
assured and there are no post-delivery obligations other than warranty. Under these criteria,
product revenue is generally recognized upon shipment of product to customers. Sales to authorized
domestic distributors and Direct / OEMs are made with certain rights of return and price adjustment
provisions. Estimated reserves for future returns and pricing adjustments are established by us
based on an analysis of historical patterns of returns and price adjustments as well as an analysis
of authorized returns compared to received returns, current on-hand inventory at distributors, and
distribution sales for the current period. Estimated reserves for future returns and price
adjustments are charged against revenues in the same period as the corresponding sales are
recorded. Material differences between the historical trends used to determine estimated reserves
and actual returns and pricing adjustments could result in a material change to our consolidated
results of operations or financial position. We have applied consistent methodologies for
estimating reserves for future returns and pricing adjustments for all years presented. The
reserve for future returns and pricing adjustments was $1.4&nbsp;million at September&nbsp;30, 2007 compared
to $1.8&nbsp;million at September&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also generate revenue from the sale of software licenses, post-contract customer support, fees
associated with technical support, training, professional and engineering services, and royalties.
Revenue recognized resulting from such non-product sales represented 0.4% of net sales in fiscal
2007, 1.3% of net sales in fiscal 2006, and 1.3% of net sales in fiscal 2005. Our software
development tools and development boards often include multiple elements, including hardware,
software licenses, post-contract customer support, limited training and basic hardware design
review. Our customers purchase these products and services during their product development
process in which they use the tools to build network connectivity into the devices they are
manufacturing. Revenue for software licenses, professional and engineering services and training
is recognized upon performance, which includes delivery of a final product version and acceptance
by the customer. For post-contract customer support and fees associated with technical support,
revenue is deferred and recognized over the life of the contract as service is performed. Unearned
post-contract customer support and unearned nonrecurring engineering services revenue is included
in deferred revenue on the balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">ALLOWANCE FOR DOUBTFUL ACCOUNTS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We maintain an allowance for doubtful accounts, which reflects the estimate of losses that may
result from the inability of some of our customers to make required payments. The estimate for the
allowance for doubtful accounts is based on known circumstances regarding collectibility of
customer accounts and historical collections experience. If the financial condition of one or more
of our customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Material differences between the historical trends used to
estimate the allowance for doubtful accounts and actual collection experience could result in a material change to our consolidated results of operations
or financial position. The allowance for doubtful accounts was $0.5&nbsp;million at both September&nbsp;30,
2007 and 2006.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">INVENTORY
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories are stated at the lower of cost or fair market value, with cost determined using the
first-in, first-out method. We reduce the carrying value of our inventories for estimated excess
and obsolete inventories equal to the difference between the cost of inventory and its estimated
realizable value based upon assumptions about future product demand and market conditions. If
actual product demand or market conditions are less favorable than those projected by management,
additional inventory write-downs may be required that could result in a material change to our
consolidated results of operations or financial position. We have applied consistent methodologies
for the net realizable value of inventories. The reserve for excess and obsolete inventory was
$2.0&nbsp;million and $2.6&nbsp;million at September&nbsp;30, 2007 and 2006, respectively. The reserve decreased
by $0.6&nbsp;million in fiscal 2007 primarily due to write-offs of excess and obsolete inventory.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">IDENTIFIABLE INTANGIBLE ASSETS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Purchased proven technology, customer relationships, license agreements, covenants not to compete
and other identifiable intangible assets are recorded at fair value when acquired in a business
acquisition, or at cost when not purchased in a business combination. Purchased in-process
research and development costs (IPR&#038;D) are expensed upon consummation of the related business
acquisition. All other identifiable intangible assets are amortized on a straight-line basis over
their estimated useful lives of three to thirteen years. Useful lives for identifiable intangible
assets are estimated at the time of acquisition based on the periods of time from which we expect
to derive benefits from the identifiable intangible assets. Methods of amortization reflect the
pattern in which the asset is consumed. To date, all of our identifiable intangible assets are
being amortized on a straight-line basis. Amortization of purchased and core technology is
presented as a separate component of cost of sales in the Consolidated Statement of Operations.
Amortization of all other acquired identifiable intangible assets is charged to operating expenses
as a component of general and administrative expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with FAS No.&nbsp;144 &#147;Accounting for the Impairment or Disposal of Long-Lived Assets&#148;
(FAS 144), identifiable intangible assets are reviewed for impairment whenever events or
circumstances indicate that the asset&#146;s undiscounted expected future cash flows are not sufficient
to recover the carrying value amount. We measure impairment loss by utilizing an undiscounted cash
flow valuation technique using fair values indicated by the income approach. Impairment losses, if
any, are recorded currently. To the extent that our undiscounted future cash flows were to decline
substantially, such an impairment charge could result. No impairment was identified during fiscal
2007. There are certain assumptions inherent in projecting the recoverability of our identifiable
intangible assets. If actual experience differs from the assumptions made, our consolidated
results of operations or financial position could be materially impacted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">GOODWILL
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill represents the excess of cost over the fair value of identifiable assets acquired and is
not amortized. However, in accordance with FAS No.&nbsp;142, goodwill is subject to an impairment
assessment at least annually which may result in a charge to operations if the fair value of the
reporting unit in which the goodwill is reported declines. There are certain assumptions inherent
in projecting the fair value of goodwill. Significant assumptions include our estimates of future
cash flows and the cost of capital. These and other estimates are based upon information that we
use to prepare our annual and five year business plan projections. If actual experience differs from the assumptions made, our consolidated results of operations or financial
position could be materially impacted.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->36<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We performed our annual goodwill impairment assessment as of June&nbsp;30, 2007 and determined that
there was no impairment. Goodwill of $66.8&nbsp;million is recorded on our consolidated balance sheet
as of September&nbsp;30, 2007. (See Note 3 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">INCOME TAXES
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We operate in multiple tax jurisdictions both in the U.S. and outside of the U.S. Accordingly, we
must determine the appropriate allocation of income to each of these jurisdictions. This
determination requires us to make several estimates and assumptions. Tax audits associated with
the allocation of this income, and other complex issues, may require an extended period of time to
resolve and could result in adjustments to our income tax balances that are material to our
consolidated financial position and results of operations. During fiscal 2007, we reversed $3.6
million in income tax reserves primarily associated with the closing of a German tax audit and the
statutory closing of a prior U.S. federal and state tax year. We also recorded other discrete tax
benefits of $0.7&nbsp;million related to the filing of U.S. amended tax returns, enactment of the
extension of the research and development tax credit, and adjustments to actual for items reported
on the tax returns filed for fiscal 2006. During fiscal 2006, we recorded discrete tax benefits of
$1.6&nbsp;million, primarily related to the settlement of an audit with the French government of certain
of our prior fiscal years income tax returns. We had established tax reserves that were no longer
required as a result of the settlement. In the first quarter of fiscal 2005, the Internal Revenue
Service (IRS)&nbsp;completed an audit of certain of our prior fiscal years&#146; income tax returns, subject
to final approval by the Congressional Joint Committee on Taxation. As a result of a settlement
agreement associated with this audit, we paid $3.2&nbsp;million to the IRS in the first quarter of
fiscal 2005 resulting in a reduction to the income taxes payable liability. In February&nbsp;2005, the
Congressional Joint Committee on Taxation approved the settlement with the IRS. We had tax
reserves recorded in excess of the ultimate amount settled, resulting in an income tax benefit of
$5.7&nbsp;million in fiscal 2005 representing the excess income tax reserves over the amount paid. (See
Note 8 to our Consolidated Financial Statements). Certain open tax years are expected to close
during fiscal year 2008 and future years that may result in adjustments to our income tax balances
in those years that are material to our consolidated financial position and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Deferred tax assets and liabilities are recorded based on FAS No.&nbsp;109, &#147;Accounting for Income
Taxes&#148; (FAS&nbsp;109). The amount of deferred tax assets and liabilities actually realized could be
impacted by differences in the timing or amount of future reversals of existing deferred tax
liabilities or changes in the amounts of future taxable income. If we determine that it is more
likely than not that a deferred tax asset will not be realized, a valuation allowance would be
required, and would be reflected as income tax expense at the time that any such change in
estimated future taxable income is determined. We have determined that a valuation allowance is
not required as of September&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">STOCK-BASED COMPENSATION
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective October&nbsp;1, 2005 of fiscal 2006, we adopted FASB Statement No.&nbsp;123 (revised 2004),
&#147;Share-Based Payment&#148; (FAS 123R) which revises FAS 123 and supersedes APB 25. This standard
requires the recognition of the cost of employee services received in exchange for an award of
equity instruments based on the grant date fair value of the award. Under this statement, we must
measure the cost of employee services received in exchange for an award of equity instruments based
upon the fair value of the award on the date of grant. This cost
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">must be recognized over the period during which an employee is required to provide the service
(usually the vesting period). For fiscal 2007 and 2006, stock-based compensation resulted in an
increase in compensation expense of $3.0&nbsp;million and $2.3&nbsp;million, respectively, and a reduction to
net income of $2.0&nbsp;million and $1.5&nbsp;million, respectively, resulting in a reduction to net income
per diluted common share of $0.08 for fiscal 2007 and $0.06 for fiscal 2006. (See Note 9 to our
Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Compensation expense for stock-based compensation is estimated on the grant date using the
Black-Scholes model. Our specific assumptions for the risk free interest rate, expected term,
expected volatility and expected dividend yield are documented in Note 9 to our Consolidated
Financial Statements. Additionally, under FAS 123R, we are required to estimate pre-vesting
forfeitures for purposes of determining compensation expense to be recognized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">SELF-INSURED LIABILITIES
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are self-insured and retain a significant portion of the risk for certain losses related to
health and dental liability claims. Liabilities associated with these losses include
estimates of both claims filed and losses incurred but not yet reported. Through various
methods, including analysis of historical trends, we estimate the costs of these risks. We
believe the amounts accrued are adequate, although actual losses may differ from the amounts
provided. We maintain stop-loss coverage to limit the exposure related to certain risks.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->38<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">INTEREST RATE RISK

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our exposure to interest rate risk relates primarily to our investment portfolio. Investments are
made in accordance with our investment policy and consist of high grade commercial paper and
corporate bonds. We do not use derivative financial instruments to hedge against interest rate
risk as all investments are held to maturity and the majority of our investments mature in less
than a year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">FOREIGN CURRENCY RISK
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are exposed to foreign currency transaction risk associated with certain sales transactions
being denominated in Euros or Japanese Yen and foreign currency translation risk as the financial
position and operating results of our foreign subsidiaries are translated into U.S. Dollars for
consolidation. We have not implemented a hedging strategy to reduce foreign currency risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2007, the average monthly exchange rate for the Euro to the U.S. Dollar increased by
approximately 8.1% from 1.2312 to 1.3305 and the average monthly exchange rate for the Japanese Yen
to the U.S. Dollar decreased by approximately 2.3% from .0086 to .0084. A 10.0% change from the
2007 average exchange rate for the Euro and Yen to the U.S. Dollar would have resulted in a 1.7%
increase or decrease in annual net sales and a 1.6% increase or decrease in stockholders&#146; equity.
The above analysis does not take into consideration any pricing adjustments we may need to consider
in response to changes in the exchange rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">CREDIT RISK
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have some exposure to credit risk related to our accounts receivable portfolio. Exposure to
credit risk is controlled through regular monitoring of customer financial status, credit limits
and collaboration with sales management on customer contacts to facilitate payment.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->39<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF DIGI INTERNATIONAL INC.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, of cash flows, and of stockholders&#146; equity and comprehensive income
present fairly, in all material respects, the financial position of Digi International Inc. and its
subsidiaries at September&nbsp;30, 2007 and September&nbsp;30, 2006, and the results of their operations and
their cash flows for each of the three years in the period ended September&nbsp;30, 2007 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing under Item&nbsp;15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
September&nbsp;30, 2007, based on criteria established in Internal Control &#151; Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company&#146;s
management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Form 10-K.
Our responsibility is to express opinions on these financial statements, on the financial
statement schedule, and on the Company&#146;s internal control over financial reporting based on our
audits which were integrated audits in 2007 and 2006. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As described in Note 9, the Company adopted the provisions of Statement of Financial Accounting
Standard No.&nbsp;123 (revised 2004), &#147;Share-Based Payment,&#148; (FAS 123R) beginning October&nbsp;1, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A company&#146;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&#146;s internal control over financial reporting includes those policies and procedures that
(i)&nbsp;pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii)&nbsp;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 (iii)&nbsp;provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company&#146;s assets that could have a material
effect on the financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio -->
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">/s/ PricewaterhouseCoopers LLP<BR>
Minneapolis, Minnesota<BR>
November&nbsp;27, 2007

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS</B><BR>
(in thousands, except per common share data)

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">For the fiscal years ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales (exclusive of amortization of purchased
and core technology shown separately below)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,339</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,531</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,364</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquired in-process research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,581</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(86</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(213</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(104</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(169</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(451</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,026</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,983</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average common shares, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,450</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average common shares, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,371</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.<BR>
CONSOLIDATED BALANCE SHEETS</B><BR>
(in thousands, except share data)

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">As of September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,674</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,861</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,625</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Marketable securities, long-term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, equipment and improvements, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">251,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">225,321</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital lease obligations, current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">381</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,748</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,712</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,851</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital lease obligations, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">725</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Preferred stock, $.01 par value; 2,000,000 shares authorized; none
issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Common stock, $.01 par value; 60,000,000 shares authorized;
28,153,763 and 27,748,640 shares issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,782</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,009</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Treasury stock, at cost, 2,606,419 and 2,711,496 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,435</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,178</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">251,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">225,321</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS</B><BR>
(in thousands)

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">For the fiscal years ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to net cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Depreciation of property, equipment and improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,295</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Amortization of identifiable intangible assets and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,575</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Bad debt and product return recoveries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(93</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(368</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(820</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Gain on sale of intellectual property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(247</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Provision for inventory obsolescence</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Excess tax benefits from stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(621</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(726</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Tax benefit related to the exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,052</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Acquired in-process research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">(Gain) loss on sale of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(427</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Changes in operating assets and liabilities (net of acquisitions):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(142</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(818</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,730</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,448</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,883</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(602</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(195</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(736</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(270</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(631</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,039</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(508</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,174</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">863</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(814</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,010</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:90px; text-indent:-15px">Total adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">391</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:90px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,056</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of held-to-maturity marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(92,742</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,881</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,943</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from maturities of held-to-maturity marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,898</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of intellectual property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property, equipment, improvements and certain
other intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,899</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,331</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,329</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contingent purchase price payments related to business acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(781</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of MaxStream, Inc., net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,096</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of Rabbit Semiconductor, Inc., net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,934</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of FS Forth-Systeme GmbH and Sistemas Embebidos S.A.,
net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,759</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,715</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,067</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on short-term borrowing and line of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,274</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(152</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Borrowing on note payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payment on note payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from stock option plan transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from employee stock purchase plan transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Excess tax benefits from stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rates changes on cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(107</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,538</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,990</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental Cash Flows Information:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes refunded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,396</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(513</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other non-cash financing and investing items:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Assumption of line of credit related to acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Assumption of capital leases related to acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,747</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Accrual for FS Forth-Systeme GmbH contingent purchase price payment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Issuance of common stock for MaxStream acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.<BR>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY AND COMPREHENSIVE INCOME</B><BR>
(in thousands)
</DIV>
<DIV align="left" style="font-size: 9pt; margin-top: 6pt">For the
years ended September&nbsp;30, 2007, 2006 and 2005</DIV>
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD rowspan="4" valign="bottom"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Additional</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Other</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Total</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Treasury Stock</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Paid-In</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Retained</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Comprehensive</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Stockholders&#146;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Par Value</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Value</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Capital</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Earnings</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Income</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Equity</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,270</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">128,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">$127,079</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,971</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee stock purchase issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(71</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock upon exercise of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit realized upon exercise
of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options issued to
non-employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,766</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee stock purchase issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">764</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock upon exercise of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,558</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit realized upon exercise
of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,289</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock &#151; MaxStream
acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,178</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">$193,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,954</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee stock purchase issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(106</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock upon exercise of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,389</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit realized upon exercise
of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,025</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(18,435</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">172,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">$222,905</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>BUSINESS DESCRIPTION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are a worldwide leader in device networking for business, developing reliable products and
technologies to connect and securely manage local or remote electronic devices over a network or
via the Internet. Businesses use our products to create, customize and control retail operations,
industrial automation and other applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are sold globally through distributors, systems integrators, solution providers and
direct marketers as well as direct to strategic OEMs, government and commercial partners.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PRINCIPLES OF CONSOLIDATION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The consolidated financial statements include our accounts and the accounts of our wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CASH EQUIVALENTS AND MARKETABLE SECURITIES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We consider all highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. Investments with original maturities in excess of three months are
classified as marketable securities. Marketable securities consist of high-grade commercial paper
and corporate bonds. All marketable securities are classified as held-to-maturity and are carried
at amortized cost. Gross unrealized holding gains were $32,650 and none as of September&nbsp;30, 2007
and 2006. Gross unrealized holding losses were $141,424 and $55,145 as of September&nbsp;30, 2007 and
2006, respectively. Because we intend to hold all marketable securities until maturity,
realization of the unrealized holding loss at September&nbsp;30, 2007 is not likely, and therefore not
recorded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ALLOWANCE FOR DOUBTFUL ACCOUNTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial instruments that may subject us to significant concentrations of credit risk consist
primarily of trade receivables. Creditworthiness and account payment status are routinely
monitored and collateral is not required. We maintain an allowance for doubtful accounts, which
reflects the estimate of losses that may result from the inability of some of our customers to make
required payments. The estimate for the allowance for doubtful accounts is based on known
circumstances regarding collectibility of customer accounts and historical collections experience.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>FAIR VALUE OF FINANCIAL INSTRUMENTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our financial instruments consist primarily of cash equivalents, marketable securities, trade
accounts receivable and accounts payable for which current carrying amounts approximate fair market
value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INVENTORIES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories are stated at the lower of cost or fair market value, with cost determined using the
first-in, first-out method. Appropriate consideration is given to deterioration, obsolescence and
other factors in evaluating fair market value.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>PROPERTY, EQUIPMENT AND IMPROVEMENTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Property, equipment and improvements are carried at cost, net of accumulated depreciation.
Depreciation is provided by charges to operations using the straight-line method over their
estimated useful lives. Furniture and fixtures and other equipment are depreciated over a period
of three to five years. Building improvements and buildings are depreciated over ten and
thirty-nine years, respectively. Equipment under capital lease is depreciated over the lease term.
We own and occupy three buildings located in Minnetonka and Eden Prairie, Minnesota and Dortmund,
Germany. We are attempting to sell the building in Dortmund, Germany with a potential leaseback.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Expenditures for maintenance and repairs are charged to operations as incurred, while major
renewals and betterments are capitalized. The assets and related accumulated depreciation accounts
are adjusted for asset retirements and disposals with the resulting gain or loss included in
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>IDENTIFIABLE INTANGIBLE ASSETS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Purchased proven technology, license agreements, covenants not to compete and other identifiable
intangible assets are recorded at fair value when acquired in a business acquisition, or at cost
when not purchased in a business acquisition. Purchased in-process research and development costs
(IPR&#038;D) are expensed upon consummation of the related business acquisition. Useful lives for
identifiable intangible assets are estimated at the time of acquisition based on the periods of
time from which we expect to derive benefits from the identifiable intangible assets and range from
three to thirteen years. Methods of amortization reflect the pattern in which the asset is
consumed. To date, all of our identifiable intangible assets are being amortized on a
straight-line basis. Amortization of purchased and core technology is presented as a separate
component of cost of sales in the Consolidated Statement of Operations. Amortization of all other
acquired identifiable intangible assets is charged to operating expense as a component of general
and administrative expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In accordance with Statement of Financial Accounting Standard No.&nbsp;144 &#147;Accounting for the
Impairment or Disposal of Long-Lived Assets&#148; (FAS 144), identifiable intangible assets are reviewed
for impairment whenever events or circumstances indicate that undiscounted expected future cash
flows are not sufficient to recover the carrying value amount. We measure impairment loss by
utilizing an undiscounted cash flow valuation technique using fair values indicated by the income
approach. Impairment losses, if any, are recorded currently. No impairments were identified
during fiscal 2007, 2006 or 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>GOODWILL</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill represents the excess of cost over the fair value of identifiable assets acquired.
Goodwill is subject to an impairment assessment, using a discounted cash flow technique by
reporting unit, at least annually which may result in a charge to operations if the fair value of
the reporting unit in which the goodwill is reported declines. We performed our annual goodwill
impairment assessment as of June&nbsp;30, 2007 and 2006 for our one reporting unit and June&nbsp;30, 2005 for
our three reporting units. Since the calculated fair value of each reporting unit exceeded book
value at each of these dates, there was no impairment identified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>STOCK REPURCHASES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From time to time, our Board of Directors authorizes us to repurchase common stock when market
conditions are favorable or when a strategic opportunity exists. We have outstanding a Board of
Directors authorization to repurchase up to 1,000,000 shares of our common stock. As of September
30, 2007, no common stock has been repurchased under this authorization.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>REVENUE RECOGNITION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recognize revenue in accordance with Staff Accounting Bulletin No.&nbsp;104 &#147;Revenue Recognition in
Financial Statements&#148; (SAB 104), Statement of Financial Accounting Standards No.&nbsp;48 &#147;Revenue
Recognition when the Right of Return Exists&#148; (FAS 48), Statement of Position No.&nbsp;97-2 &#147;Software
Revenue Recognition&#148; (SOP 97-2), as amended by SOP 98-4 &#147;Deferral of the Effective Date of Certain
Provisions of SOP No.&nbsp;97-2&#148;, SOP 81-1 &#147;Accounting for Performance of Construction-Type and Certain
Production-Type Contracts&#148;, and Emerging Issues Task Force (EITF)&nbsp;00-21 &#147;Revenue Arrangements with
Multiple Deliverables&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue recognized for hardware product sales was 99.6% of net sales in fiscal 2007 and 98.7% of
net sales in fiscal 2006 and fiscal 2005. We recognize product revenue when persuasive evidence of
an arrangement exists, delivery has occurred, the sales price is fixed or determinable,
collectibility is reasonably assured and there are no post-delivery obligations, other than
warranty. Under these criteria, product revenue is generally recognized upon shipment of product
to customers, including Direct (end-user) / OEMs and distributors. Sales to authorized domestic
distributors and Direct / OEMs are made with certain rights of return and price adjustment
provisions. Estimated reserves for future returns and pricing adjustments are established by us
based on an analysis of historical patterns of returns and price adjustments as well as an analysis
of authorized returns compared to received returns, current on-hand inventory at distributors, and
distribution sales for the current period. Estimated reserves for future returns and price
adjustments are charged against revenues in the same period as the corresponding sales are
recorded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also generate revenue from the sale of software licenses, post-contract customer support, fees
associated with technical support, training, professional and engineering services, and royalties.
Revenue recognized resulting from such non-product sales represented 0.4% of net sales in fiscal
2007, 1.3% of net sales in fiscal 2006, and 1.3% of net sales in fiscal 2005. Our software
development tools and development boards often include multiple elements, including hardware,
software licenses, post-contract customer support, limited training and basic hardware design
review. Our customers purchase these products and services during their product development
process in which they use the tools to build network connectivity into the devices they are
manufacturing. Revenue for software licenses, professional and engineering services and training
is recognized upon performance, which includes delivery of a final product version and acceptance
by the customer. For post-contract customer support and fees associated with technical support,
revenue is deferred and recognized over the life of the contract as service is performed. Royalty
revenue is recognized when cash is received from the customer. Unearned post-contract customer
support and unearned nonrecurring engineering services revenue is included in deferred revenue on
the balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>RESEARCH AND DEVELOPMENT</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development costs are expensed when incurred. Research and development costs include
compensation, allocation of corporate costs, depreciation, utilities, professional services and
prototypes. Software development costs are expensed as incurred until the point that technological
feasibility and proven marketability of the product are established. To date, the time period
between the establishment of technological feasibility and completion of software development has
been short, and no significant development costs have been incurred during that period.
Accordingly, we have not capitalized any software development costs to date.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->48<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INCOME TAXES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Deferred income taxes are recognized for the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NET INCOME PER COMMON SHARE</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Basic net income per common share is calculated based on the weighted average number of common
shares outstanding during the period. Diluted net income per common share is computed by dividing
net income by the weighted average number of common and common equivalent shares outstanding during
the period. Our only potentially dilutive common shares are those that result from dilutive common
stock options and shares purchased through the employee stock purchase plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table is a reconciliation of the numerators and denominators in the net income per
common share calculations (in thousands, except per common share data):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Years ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Numerator:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Denominator for basic net income per common
share - weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,450</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Employee stock options and employee stock purchase plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">921</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Denominator for diluted net income per common
share - adjusted weighted average shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,371</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock options to purchase 573,134, 1,327,000 and 720,875 common shares at September&nbsp;30, 2007, 2006
and 2005, respectively, were not included in the computation of diluted earnings per common share
because the options&#146; exercise prices were greater than the average market price of common shares
and, therefore, their effect would be antidilutive whether or not we generate net income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We use the treasury stock method to calculate the weighted-average shares used in the diluted
earnings per share computation. Under the treasury stock method, the assumed proceeds calculation
includes: (a)&nbsp;the actual proceeds to be received from the employee upon exercise, (b)&nbsp;the average
unrecognized compensation cost during the period and (c)&nbsp;any tax benefits that will be credited
upon exercise to additional paid-in capital. We determine whether our windfall pool of available
excess tax benefits is sufficient to absorb the shortfall. If so, the effect of the hypothetical
deferred tax asset write-off reduces the assumed proceeds in the treasury stock calculation. If
there is no pool of available excess tax benefits, or if the amount of the pool is sufficient to
absorb the entire hypothetical deficient tax deduction, the amount of the deficiency that is
charged to income tax
expense is not considered to be a reduction of the assumed proceeds. Currently, we have determined
that we have sufficient windfall pool available.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>STOCK-BASED COMPENSATION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective October&nbsp;1, 2005, we adopted Statement of Financial Accounting Standard No.&nbsp;123
(revised 2004), &#147;Share-Based Payment&#148; (FAS 123R), as amended by FASB Staff Position No.&nbsp;FAS
123(R)-4, using the modified prospective method of application. This standard requires the
recognition of the cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. Under this statement, we must
measure the cost of employee services received in exchange for an award of equity instruments
based upon the fair value of the award on the date of grant. This cost must be recognized
over the period during which an employee is required to provide the service (usually the
vesting period). Under the modified prospective method, compensation expense is recognized
both for (i)&nbsp;awards granted, modified or settled subsequent to September&nbsp;30, 2005 and (ii)&nbsp;the
non-vested portion of awards granted prior to October&nbsp;1, 2005. The consolidated financial
statements for fiscal 2005 have not been restated to reflect, and do not include, the impact
of FAS 123R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Had we applied the fair-value-based method of accounting for our stock options granted to employees
and for the stock purchases under the employee stock purchase plan and charged operations over the
option vesting periods based on the fair value of options on the date of grant, net income and net
income per common share would have changed to the pro forma amounts indicated below (in thousands,
except per common share data):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Year ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,665</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Total stock-based compensation
expense included in reported net income,
net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards, net of
related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,363</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,337</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic &#151; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic &#151; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted &#151; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted &#151; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>FOREIGN CURRENCY TRANSLATION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial position and results of operations of our international subsidiaries are measured using
local currencies as the functional currency. Assets and liabilities of these operations are
translated at the exchange rates in effect at each fiscal year-end. Statements of operations
accounts are translated at the weighted average rates of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from period to period are
included in accumulated other comprehensive income (loss)&nbsp;in stockholders&#146; equity. Gains and
losses on foreign currency exchange transactions are reflected in the statement of operations. Net
transaction gains and losses credited or expensed to general and administrative expenses for fiscal
years 2007,
2006, and 2005 were immaterial. We have not implemented a hedging strategy to reduce the risk of
foreign currency translation exposures.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>USE OF ESTIMATES AND RISKS AND UNCERTAINTIES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The preparation of consolidated financial statements in conformity with generally accepted
accounting principles in the United States 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>COMPREHENSIVE INCOME</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our comprehensive income is comprised of net income and foreign currency translation adjustments.
Foreign currency translation adjustments are charged or credited to the accumulated other
comprehensive income account in stockholders&#146; equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>RECENT ACCOUNTING DEVELOPMENTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2007, the Financial Accounting Standards Board (&#147;FASB&#148;) ratified Emerging Issues Task
Force (&#147;EITF&#148;) Issue No.&nbsp;07-3, &#147;Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development Activities&#148; (&#147;EITF No.&nbsp;07-3&#148;).
EITF No.&nbsp;07-3 requires that nonrefundable advance payments for goods and services that will be
used or rendered for future research and development activities be deferred and capitalized
and not recognized as expense until the research and development activities are performed.
EITF No.&nbsp;07-3 is applicable prospectively to new contractual arrangements entered into
beginning in our fiscal year 2009. We are currently evaluating the impact that the adoption
of EITF No.&nbsp;07-3 will have, but do not believe it will have a material effect on our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2007, the FASB issued FASB Statement No.&nbsp;159, &#147;The Fair Value Option for Financial
Assets and Financial Liabilities &#150; Including an Amendment of FASB Statement No.&nbsp;115&#148; (&#147;SFAS
159&#148;). This Statement provides companies with an option to measure, at specified election
dates, many financial instruments and certain other items at fair value that are not currently
measured at fair value. A company that adopts SFAS 159 will report unrealized gains and
losses on items for which the fair value option has been elected in earnings at each
subsequent reporting date. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. This Statement is
effective for fiscal years beginning after November&nbsp;15, 2007, which for us is the first
quarter of fiscal 2009. We are currently evaluating the impact that SFAS 159 could have on
our consolidated financial statements, if we decide to adopt, but do not expect it to have a
material impact on our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements&#148; (&#147;FAS&nbsp;157&#148;). FAS&nbsp;157
defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of FAS&nbsp;157 are effective for our fiscal year beginning October&nbsp;1, 2008 for financial
assets and liabilities and for non-financial assets and liabilities beginning October&nbsp;1, 2009. We
are currently evaluating the impact of the provisions of FAS&nbsp;157 on our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In July&nbsp;2006, the FASB issued Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in Income
Taxes &#150; an interpretation of FASB Statement No.&nbsp;109&#148; (&#147;FIN 48&#148;). FIN 48 prescribes a
recognition threshold and measurement process for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Additionally,
FIN 48 provides guidance on the derecognition,
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>RECENT ACCOUNTING DEVELOPMENTS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">classification, accounting in interim periods and disclosure requirements for uncertain tax
positions. The accounting provisions of FIN 48 are effective for us beginning October&nbsp;1,
2007. We anticipate that the effect of the adoption of FIN 48 on our consolidated financial
statements will be immaterial. However, we expect to reclassify substantially all of our
unrecognized tax benefits from current to non-current liabilities, since payment of cash is
not anticipated within one year of the balance sheet date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. ACQUISITIONS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MaxStream, Inc.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;27, 2006, we acquired MaxStream, Inc. (MaxStream), a privately held corporation and a
leader in the wireless device networking market. The total purchase price of $40.5&nbsp;million
included $19.8&nbsp;million in cash (excluding cash acquired of $3.7&nbsp;million) and $20.7&nbsp;million in
common stock, in exchange for all outstanding shares of MaxStream&#146;s preferred and common stock and
outstanding stock options. This purchase consideration includes an adjustment of $0.6&nbsp;million
pertaining to the closing working capital of MaxStream as of July&nbsp;27, 2006. We did not replace
MaxStream&#146;s outstanding options with Digi options. The value of our common stock was based on a
per share value of $12.35, calculated as the average market price of the common stock during the
two business days immediately preceding July&nbsp;27, 2006 when the parties reached agreement on terms
and announced the acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cash in the amount of $1.925&nbsp;million and 165,090 shares of common stock were deposited to an escrow
fund established at Wells Fargo Bank, National Association. These amounts were held in escrow for
a period not to exceed one year from the date of closing to satisfy possible claims that could
arise pursuant to specific representation and warranty sections of the merger agreement. The
escrowed amounts of cash and stock were included in the determination of the purchase consideration
on the date of acquisition because our management believed the outcome of the representation and
warranty matters was reasonably determinable. We paid the former shareholders the full amount of
the escrowed cash and stock from escrow on August&nbsp;1, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchase price was allocated to the estimated fair value of assets acquired and liabilities
assumed. The purchase price allocation was adjusted by $0.4&nbsp;million in March&nbsp;2007 resulting in an
increase in working capital and a reduction in goodwill due to the filing of an amended final tax
return for MaxStream. The adjusted purchase price allocation resulted in goodwill of $26.0&nbsp;million
and a charge of $2.0&nbsp;million for acquired in-process research and development. We believe that the
acquisition resulted in the recognition of goodwill primarily because MaxStream&#146;s wireless
technologies and products significantly expand our wireless offering, covering both short and
medium range distances using embedded modules and boxed/packaged solutions, enabling us to provide
our customers end-to-end wireless solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">MaxStream&#146;s operating results are included in our consolidated results of operations from the date
of acquisition. The consolidated balance sheets as of September&nbsp;30, 2007 and 2006 reflect the
allocation of the purchase price to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. ACQUISITIONS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below sets forth the final purchase price allocation (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, including cash in escrow and direct acquisition costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,826</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock, including stock in escrow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40,530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fair value of net tangible assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,090</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Existing purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Existing customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade names and trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patent pending / unpatented technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">In-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,059</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities related to identifiable intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,719</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40,530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchased and core technologies identified above have useful lives ranging between four to nine
years, customer relationships have useful lives of ten years, and patents and trademarks have
useful lives between five to ten years. Useful lives for identifiable intangible assets are
estimated at the time of acquisition based on the periods of time from which we expect to derive
benefits from the identifiable intangible assets. The identifiable intangible assets are amortized
using the straight-line method which reflects the pattern in which the asset is consumed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time of acquisition, MaxStream had development projects in process associated with the
XStream Gen. 2, X. Eleven, Mesh Firmware, Xbee Zigbee Firmware and Xplore products. We estimated
that $2.0&nbsp;million of the purchase price represented the fair value of acquired in-process research
and development related to the products listed below (in thousands) that were under development,
had a measurable percentage completed and a documented expected life, had not yet reached
technological feasibility, and had no alternative future uses. This amount was expensed as a
non-tax-deductible charge upon consummation of the acquisition.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">XStream Gen. 2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">X. Eleven</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mesh Firmware</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xbee Zigbee Firmware</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Xplore</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We utilized the income valuation approach to determine the estimated fair value of the acquired
in-process research and development. These estimates were based on the following assumptions:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The estimated revenues were based upon our estimate of revenue growth for each of the
products over the next five fiscal years, using the assumption that all revenue recorded
after that date will be generated from future technologies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The estimated gross margin was based upon historical gross margin for MaxStream&#146;s
products, with an increase over time attributable to production synergies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The estimated operating expenses were based on consideration of historical selling,
general and administrative expenses as a percentage of sales and MaxStream&#146;s projected
operating expenses.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. ACQUISITIONS (CONTINUED)</B>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Maintenance research and development, defined as the research and development necessary
to sustain the existing technology and its revenue stream, was also included as an
operating expense. The
estimated remaining cost to complete each in-process research and development technology was
also included in operating expenses.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>When applying the income valuation approach, the cash flows expected to be generated by
an asset are discounted to their present value equivalent using a rate of return that
reflects the relative risk of the investment, as well as the time value of money. This
return, known as the weighted average cost of capital (&#147;WACC&#148;), is an overall rate based
upon the individual rates of return for invested capital (equity and interest-bearing
debt). The discount rate used in the income valuation approach was 25%. Premiums were
added to the WACC to account for the inherent risks in the development of the products, the
risks of the products being completed on schedule, and the risk of the eventual sales of
the product meeting our expectations. We used a 40% rate of return for the in-process
research and development projects.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Xplore and Mesh Firmware projects were released during fiscal year 2007. The XStream Gen. 2
along with the X. Eleven and Xbee Zigbee Firmware projects are expected to be released in fiscal
year 2008. These estimates described above are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these estimates will not
occur. We anticipate that the projected revenue from these projects will be in line with original
projections.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Rabbit Semiconductor Inc.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;26, 2005, we acquired Rabbit Semiconductor Inc. (Rabbit), formerly Z-World, Inc., a
privately held corporation for a purchase price of $49.3&nbsp;million in cash (excluding cash acquired
of $0.4&nbsp;million and assumption of $1.3&nbsp;million of debt) in exchange for all outstanding shares of
Rabbit&#146;s common stock and outstanding stock options. We did not replace Rabbit&#146;s outstanding
options with Digi options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchase price was allocated to the estimated fair value of assets acquired and liabilities
assumed. The purchase price allocation resulted in goodwill of $30.6&nbsp;million. We believe that the
acquisition resulted in the recognition of goodwill primarily because the complementary nature of
Rabbit microprocessor and microprocessor-based modules, and Z-World single board computer product
lines are anticipated to extend our position in the commercial device networking module business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Rabbit&#146;s operating results are included in our consolidated results of operations from the date of
acquisition. The consolidated balance sheets as of September&nbsp;30, 2007, 2006 and 2005 reflect the
allocation of the purchase price to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below sets forth the final purchase price allocation (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, including direct acquisition costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49,287</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fair value of net tangible assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,700</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">In-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,644</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities related to identifiable
intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,123</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49,287</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. ACQUISITIONS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchased and core technology identified above have useful lives ranging between five to seven
years, customer relationships have useful lives of nine years, and patents and trademarks have
useful lives between ten to thirteen years. Useful lives for identifiable intangible assets are
estimated at the time of acquisition based on the periods of time from which we expect to derive
benefits from the identifiable intangible assets. The identifiable intangible assets are amortized
using the straight-line method which reflects the pattern in which the asset is consumed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time of acquisition, Rabbit had a development project in process for the Rabbit 4000
microprocessor. The project involved the design and development of a next-generation
microprocessor that would have increased code execution speed, reduced code size, added security
features, and integrated Ethernet capabilities. We estimated that $0.3&nbsp;million of the purchase
price represented the fair value of acquired in-process research and development related to the
Rabbit 4000 microprocessor that had not yet reached technological feasibility and had no
alternative future uses. This amount was expensed as a non-tax-deductible charge upon consummation
of the acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We utilized the income valuation approach to determine the estimated fair value of the acquired
in-process research and development. These estimates were based on the following assumptions:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The estimated revenues were based upon our estimate of revenue growth over the next six
fiscal years, or the estimated life cycle of the Rabbit 4000 microprocessor, using the
assumption that all revenue recorded after that date will be generated from future
technologies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The estimated gross margin was based upon historical gross margin for Rabbit&#146;s products,
with an increase over time attributable to production synergies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The estimated selling, general and administrative expenses were based on consideration
of historical operating expenses as a percentage of sales and Rabbit&#146;s projected operating
expenses.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>When applying the income valuation approach, the cash flows expected to be generated by
an asset are discounted to their present value equivalent using a rate of return that
reflects the relative risk of the investment, as well as the time value of money. This
return, known as the WACC, is an overall rate based upon the individual rates of return for
invested capital (equity and interest-bearing debt). The discount rate used in the income
valuation approach was 23%. Premiums were added to the WACC to account for the inherent
risks in the development of the products, the risks of the products being completed on
schedule, and the risk of the eventual sales of the product meeting our expectations. We
used a 40% rate of return for the in-process research and development projects.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We released the Rabbit 4000 microprocessor in March&nbsp;2006. We anticipate that the projected revenue
from the Rabbit 4000 microprocessor will be in line with original projections. These estimates are
subject to change and no assurance can be given that deviations from these estimates will not
occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>FS Forth-Systeme GmbH/Sistemas Embebidos S.A.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective April&nbsp;1, 2005, we acquired FS Forth-Systeme GmbH/Sistemas Embebidos S.A. (collectively
referred to as FS Forth) from Embedded Solutions AG of Germany. Effective October&nbsp;1, 2006, FS
Forth merged into Digi International GmbH. FS Forth is a provider of embedded modules, software
and development services. The purchase price consisted of $6.5&nbsp;million in cash, including total
contingent consideration of $1.7&nbsp;million based on operating results payable to the former owners.
During 2007, $0.9&nbsp;million of contingent consideration was earned and accrued resulting in an
adjustment to goodwill.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. ACQUISITIONS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchase price allocation resulted in goodwill of $4.1&nbsp;million. We believe that the FS Forth
acquisition resulted in the recognition of goodwill primarily because of the anticipated extension
of its commercial device networking module business. FS Forth had modules that would immediately
add value to our broader module product line.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">FS Forth&#146;s operating results are included in our consolidated results of operations from the date
of acquisition. The consolidated balance sheets as of September&nbsp;30, 2007, 2006 and 2005 reflect the
allocation of the purchase price to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below sets forth the purchase price allocation (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash, including direct acquisition costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fair value of net tangible assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,154</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,290</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,124</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities related to identifiable
intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(784</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchased and core technology and customer relationships identified above have useful lives of
three years. Useful lives for identifiable intangible assets are estimated at the time of
acquisition based on the periods of time from which we expect to derive benefits from the
identifiable intangible assets. The identifiable intangible assets are amortized using the
straight-line method which reflects the pattern in which the asset is consumed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have determined that the FS Forth acquisition was not material to our consolidated results of
operations or financial condition. Therefore, pro forma financial information is not presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following unaudited pro forma condensed consolidated results of operations have been prepared
as if the acquisition of MaxStream and Rabbit had occurred as of the beginning of each period
presented. Pro forma adjustments include amortization of identifiable intangible assets. The pro
forma net income for the year ended September&nbsp;30, 2006 includes the $2.0&nbsp;million charge related to
acquired in-process research and development associated with the MaxStream acquisition. The pro
forma net income for the year ended September&nbsp;30, 2005 includes the $0.3&nbsp;million charge related to
acquired in-process research and development associated with the Rabbit acquisition.
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>(in thousands, except per common share amounts)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">155,749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">156,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,252</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. ACQUISITIONS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The unaudited pro forma condensed consolidated results of operations are not necessarily indicative
of results that would have occurred had the MaxStream and Rabbit acquisitions occurred as of the
beginning of each period presented above, nor are they necessarily indicative of the results that
will be obtained in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>3. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Identifiable Intangible Assets</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amortized identifiable intangible assets as of September&nbsp;30, 2007 and 2006 are comprised of the
following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">As of September 30, 2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">As of September 30, 2006</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Gross</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Gross</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">carrying</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">carrying</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amortization</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Net</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amortization</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Net</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">38,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(26,689</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(31,492</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">License agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,290</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents and trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,818</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,837</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,771</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer maintenance contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(324</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">376</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,975</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,356</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,114</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(37,166</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(38,899</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amortization expense for fiscal years 2007, 2006 and 2005 is as follows (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fiscal year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Total</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,037</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Estimated amortization expense for the next five years is as follows (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fiscal year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Total</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,668</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,202</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,637</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,076</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,512</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>3. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Goodwill</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The changes in the carrying amount of goodwill for fiscal 2007 and 2006 are as follows (in
thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance, October 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38,675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of MaxStream</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(374</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,433</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of FS Forth</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance, September 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65,841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>4. SEGMENT INFORMATION AND MAJOR CUSTOMERS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a single operating and reporting segment. Our revenues consist of products that are
in non-embedded and embedded product groupings. Non-embedded products are connected
externally to a device or larger system to provide network connectivity or port expansion,
while embedded products are being used by a product developer to build an electronic device in
which the product provides processing power, wired Ethernet, or wireless network connectivity
to that device. The products included in the non-embedded product grouping include cellular
routers, gateways, wireless communication adapters, console and serial servers, USB connected
products, remote display products, cameras and sensors, serial cards and network management
software. The products included in the embedded product grouping include modules, chips,
software and development tools, single-board computers and network interface cards. The
following table provides revenue by product grouping (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year Ended September 30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-embedded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">98,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">87,453</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Embedded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,745</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The information in the following table provides revenue by the geographic location of the customer
for the years ended September&nbsp;30, 2007, 2006 and 2005 (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year Ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">88,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">72,004</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,380</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asia Pacific</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other international</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,647</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>4. SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net long-lived assets by geographic location:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">As of September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International, primarily Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,384</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total net long-lived assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,808</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our U.S. export sales comprised 31.3%, 35.4% and 40.4% of net sales for the years ended September
30, 2007, 2006 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table identifies customers whose net sales comprised more than 10% of net sales
during the years ended September&nbsp;30, 2007, 2006 and 2005 as well as customers who comprised more
than 10% of trade accounts receivable as of September&nbsp;30, 2007, 2006 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000">Year Ended September 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Net Sales %</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Receivable %</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Net Sales %</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Receivable %</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Net Sales %</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Receivable %</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12.9</TD>
    <TD nowrap>%</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="left">*</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Represents less than 10% of net sales or trade accounts receivable, as applicable</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>5. SELECTED BALANCE SHEET DATA</B>

</DIV>




<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>As of September&nbsp;30, (in thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accounts receivable, net:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Work in process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">606</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,814</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,911</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, equipment and improvements, net:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,381</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,653</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,612</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Purchased software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,929</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,756</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,814</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Less accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,326</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other accrued expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Product warranty accrual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">879</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Contingent purchase price accrual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Included in equipment at September&nbsp;30, 2007 is $2.4&nbsp;million of equipment under capital leases with
accumulated depreciation of $1.7&nbsp;million. Depreciation expense was $2.5&nbsp;million, $2.7&nbsp;million and
$2.3&nbsp;million for the years ended September&nbsp;30, 2007, 2006 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>6. FINANCIAL GUARANTEES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, we warrant our products to be free from defects in material and workmanship under
normal use and service. The warranty periods range from 90&nbsp;days to five years from the date of
receipt. We have the option to repair or replace products we deem defective due to material or
workmanship. Estimated warranty costs are accrued in the period that the related revenue is
recognized based upon an estimated average per unit repair or replacement cost applied to the
estimated number of units under warranty. These estimates are based upon historical warranty
incidents and are evaluated on an ongoing basis to ensure the adequacy of the warranty accrual.
The following table summarizes the activity associated with the product warranty accrual for the
years ended September&nbsp;30, 2007, 2006 and 2005 (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Fiscal</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warranties</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Settlements</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">&nbsp;year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">October 1,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">issued</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">made</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">September 30,</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(826</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">454</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(537</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">900</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(568</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,187</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes $17 for fiscal 2006 and $97 for fiscal 2005 of warranty liabilities assumed as a
result of acquisitions described in Note 2.</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>6. FINANCIAL GUARANTEES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are not responsible and do not warrant that customer software versions created by OEM customers
based upon our software source code will function in a particular way, conform to any
specifications, are fit for any particular purpose and do not indemnify these customers from any
third party liability as it relates to or arises from any customization or modifications made by
the OEM customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>7. CAPITAL LEASE OBLIGATIONS AND SHORT-TERM BORROWINGS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;26, 2006 we entered into a short-term loan agreement in the amount of $5.0&nbsp;million to
finance the July&nbsp;27, 2006 acquisition of MaxStream, Inc. Interest was based on the daily LIBOR
rate plus 0.35% which ranged between 5.64% and 5.70% from the date of the loan through August&nbsp;17,
2006. Per the terms of the agreement, payment of the outstanding balance was due October&nbsp;31, 2006;
however, we had the option to prepay without penalty. We paid the note in full on August&nbsp;17, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;20, 2005, we entered into a short-term loan agreement in the amount of $21.0&nbsp;million. This
short-term note was used to finance the Rabbit acquisition. Per the terms of the agreement,
payment of the outstanding balance was due October&nbsp;1, 2005; however, we had the option to prepay
without penalty. We paid the note in full on July&nbsp;15, 2005. Interest was based on the daily LIBOR
rate plus 0.35% which ranged between 3.39% and 3.68% from the date of the loan through July&nbsp;15,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time we acquired Rabbit (see Note 2), Rabbit maintained a $5.0&nbsp;million revolving line of
credit with an outstanding balance of $1.3&nbsp;million. We repaid all but $1,000 of this line of
credit in fiscal year 2005. The remaining $1,000 was paid in December&nbsp;2005. The revolving line of
credit agreement was terminated as of March&nbsp;2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time we acquired Rabbit and FS Forth (see Note 2), Rabbit and FS Forth had outstanding
capital lease agreements for equipment. The following table summarizes future amounts due under
capital leases (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fiscal Year</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum payments required</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">850</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less interest on capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(113</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net minimum principal payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less capital lease obligations, current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(379</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital leases obligations, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">358</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>8. INCOME TAXES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of income before income taxes are as follows (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000">For the years ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,311</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,672</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,983</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of the income tax provision are as follows (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000">For the years ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,325</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">968</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(785</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">623</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">U.S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">463</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The net deferred tax asset at September&nbsp;30 consists of the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,667</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,482</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,866</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Uncollectible accounts and other reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">978</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,073</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">845</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Compensation costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">844</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net operating loss carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,682</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax credit carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,140</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,188</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,011</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,866</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2007, we had domestic tax credit carryforwards of $1.1&nbsp;million which expire at
various dates through 2027. We also had foreign tax credit carryforwards at September&nbsp;30, 2007, of
$0.2&nbsp;million the majority of which carry forward indefinitely.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have concluded that it is more likely than not that net deferred tax assets will be realized
based on future projected taxable income and the anticipated future reversal of deferred tax
liabilities, and therefore no valuation allowance has been established at September&nbsp;30, 2007. The
amount of the net deferred tax assets actually realized, however, could vary if there are
differences in the timing or amount of future reversals of existing deferred tax liabilities or
changes in the amounts of future taxable income. If our future taxable income projections are not
realized, a valuation allowance would be required, and would be reflected as income tax expense at
the time that any such change in future taxable income is determined.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>8. INCOME TAXES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The reconciliation of the statutory federal income tax rate to our effective income tax rate for
the years ended September&nbsp;30 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statutory income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;resulting from:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State taxes, net of federal benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Utilization of tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Extraterritorial income tax benefit and
manufacturing deduction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">German statutory tax rate change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquired in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Reversal of tax reserves primarily due to
settlement of tax audits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(31.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-deductible stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">16.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">27.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2007, we reversed $3.6&nbsp;million in income tax reserves primarily associated with the
closing of a German tax audit and the statutory closing of a prior U.S. federal and state tax year.
We had established tax reserves that were no longer required as a result of these events. In
addition, we also recorded discrete tax benefits of $0.7&nbsp;million related to the filing of U.S.
amended tax returns, enactment of the extension of the research and development tax credit, and
adjustments to actual for items reported on the tax returns filed for fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2006, we recorded discrete tax benefits of $1.6&nbsp;million, primarily related to the
settlement of an audit with the French government of certain of our prior fiscal years income tax
returns. We had established tax reserves that were no longer required as a result of the
settlement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the first quarter of fiscal 2005, the Internal Revenue Service (IRS)&nbsp;completed an audit of
certain of our prior fiscal years&#146; income tax returns, subject to final approval by the
Congressional Joint Committee on Taxation. As a result of a settlement agreement associated
with this audit, we paid $3.2&nbsp;million to the IRS in the first quarter of fiscal 2005 resulting
in a reduction to the income taxes payable liability. In February&nbsp;2005, the Congressional
Joint Committee on Taxation approved the settlement with the IRS. We had tax reserves
recorded in excess of the ultimate amount settled, resulting in an income tax benefit of
$5.7&nbsp;million in fiscal 2005 representing the excess income tax reserves over the amount paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We operate in multiple tax jurisdictions both in the U.S. and outside of the U.S.
Accordingly, we must determine the appropriate allocation of income to each of these
jurisdictions. This determination requires us to make several estimates and assumptions. Tax
audits associated with the allocation of this income, and other complex issues, may require an
extended period of time to resolve. Certain open tax years are expected to close during
fiscal year 2008 and future years that may result in adjustments to our income tax balances in
those years that are material to our consolidated financial position and results of
operations.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>9. STOCK-BASED COMPENSATION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-based awards are granted under the terms of the 2000 Omnibus Stock Plan as Amended and
Restated as of November&nbsp;27, 2006 (the Omnibus Plan) which was ratified on January&nbsp;22, 2007 at
the Annual Meeting of Stockholders, as well as our Stock Option Plan as Amended and Restated
as of November&nbsp;27, 2006 (the Stock Option Plan) and Non-Officer Stock Option Plan as Amended
and Restated as of November&nbsp;27, 2006 (the Non-Officer Plan), both of which expired during the
first quarter of fiscal 2007. Additional awards cannot be made under the Stock Option Plan or
the Non-Officer Plan. The authority to grant options under the Omnibus Plan and set other
terms and conditions rests with the Compensation Committee of the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Stock Option Plan and the Non-Officer Plan include nonstatutory stock options (NSOs) and
the Stock Option Plan also includes incentive stock options (ISOs) to employees and others who
provide services to us, including consultants, advisers and directors. Options granted under
these plans generally vest over a four year service period and will expire if unexercised
after ten years from the date of grant. Share awards vest upon continued employment. The
exercise price for ISOs and non-employee director options granted under the Stock Option Plan
was set at the fair market value of our common stock based on the closing price on the date of
grant. The exercise price for NSOs granted under the Stock Option Plan or the Non-Officer
Plan was set by the Compensation Committee of the Board of Directors and was not less than 50%
of the fair market value based on the closing price on the date of grant; however, our
practice has historically been to set the exercise price based on the closing price on the
date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Omnibus Plan authorizes the issuance of up to 3,250,000 common shares in connection with awards
of stock options, stock appreciation rights, restricted stock, performance units or stock awards.
Eligible participants include our employees, non-employee directors, consultants and advisors.
Awards may be granted under the Omnibus Plan until November&nbsp;27, 2016. Options under the Omnibus
Plan can be granted as either ISOs or NSOs. The exercise price shall be determined by our
Compensation Committee but shall not be less than the fair market value of our common stock based
on the closing price on the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, we have outstanding stock options for shares of our stock under various plans
assumed in connection with our prior acquisition of NetSilicon, Inc. (the Assumed Plans).
Additional awards cannot be made by us under the Assumed Plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recorded cash received from the exercise of stock options of $3.4&nbsp;million, $4.6&nbsp;million and $5.6
million during fiscal years 2007, 2006 and 2005, respectively. The excess tax benefits from
stock-based compensation were $0.6&nbsp;million and $0.7&nbsp;million during fiscal 2007 and 2006,
respectively. Upon exercise, we issue new shares of stock. The Plans have provisions allowing
employees to elect to pay their withholding obligation through share reduction. No employees
elected to pay income tax withholding obligations through share reduction during fiscal 2007, 2006
or 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Also, we sponsor an Employee Stock Purchase Plan as Amended and Restated as of November&nbsp;27, 2006
(the Purchase Plan), covering all domestic employees with at least 90&nbsp;days of continuous service
and who are customarily employed at least 20 hours per week. The Purchase Plan allows eligible
participants the right to purchase common stock on a quarterly basis at the lower of 85% of the
market price at the beginning or end of each three-month offering period. The Purchase Plan was
ratified on January&nbsp;22, 2007 at the Annual Meeting of Stockholders and provides for the issuance of
up to 1,750,000 shares of our Common Stock that may be purchased under the plan. Employee
contributions to the Purchase Plan were $1.0&nbsp;million, $0.8&nbsp;million and $0.5&nbsp;million in the fiscal
years ended 2007, 2006 and 2005, respectively. Pursuant to the Purchase Plan, 105,077, 83,066 and
71,345 common shares were issued to employees during the fiscal years ended 2007, 2006 and 2005
respectively. Shares are issued under the Purchase Plan from treasury stock. As of September&nbsp;30,
2007, 1,814,007 common shares are available for future issuances under the Purchase Plan.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->64<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>9. STOCK-BASED COMPENSATION (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Prior to October&nbsp;1, 2005, we accounted for our stock-based awards using the intrinsic-value method
prescribed in Accounting Principles Board Opinion No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees&#148; (APB No.&nbsp;25) and related interpretations, in accordance with Statement of Financial
Accounting Standard No.&nbsp;123, &#147;Accounting for Stock-Based Compensation&#148; (FAS No.&nbsp;123). Accordingly,
compensation costs for stock options granted were measured as the excess, if any, of the fair value
of our common stock at the date of grant over the exercise price to acquire the common stock. Such
compensation expense, if any, was amortized on a straight-line basis over the option vesting
period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective October&nbsp;1, 2005 we adopted Statement of Financial Accounting Standard No.&nbsp;123 as
amended, (FAS No.&nbsp;123R), using the modified prospective method of application. Under this
method, compensation expense is recognized both for (i)&nbsp;awards granted, modified or settled
subsequent to September&nbsp;30, 2005 and (ii)&nbsp;the nonvested portion of awards granted prior to
October&nbsp;1, 2005. Compensation expense recorded during fiscal 2007 includes approximately $1.8
million related to awards issued subsequent to September&nbsp;30, 2005. In addition, compensation
expense recorded during fiscal 2007 includes approximately $1.2&nbsp;million related to the current
vesting portion of awards issued prior to September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-based compensation expense (pre-tax) is included in the consolidated results of
operations as follows (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(758</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation after income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-based compensation cost capitalized as part of inventory was immaterial as of September&nbsp;30,
2007 and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">FAS No.&nbsp;123R also requires that the excess windfall tax benefit resulting from the tax
deductibility of the increase in the value of share-based arrangements be presented as a component
of cash flows from financing activities in the Consolidated Statements of Cash Flows. In periods
prior to October&nbsp;1, 2005, such amounts were presented as a component of cash flows from operating
activities.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>9. STOCK-BASED COMPENSATION (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of options and common shares reserved for grant under the Plans and Assumed Plans are as
follows (in thousands, except per common share amounts):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Aggregate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Available</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Contractual Term</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Intrinsic</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">for Grant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(in years)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value (1)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(635</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(131</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(478</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(615</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(134</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional shares approved for grant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(653</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(405</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(62</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,971</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at September&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at September&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our
closing stock price of $14.24 as of September&nbsp;28, 2007, which would have been received by the
option holders had all option holders exercised their options as of that date.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The intrinsic value of an option is the amount by which the fair value of the underlying stock
exceeds its exercise price. The total intrinsic value of all options exercised during each of the
twelve months ended September&nbsp;30, 2007, 2006 and 2005 was $2.4&nbsp;million, $2.9&nbsp;million and $6.0
million, respectively. The table below shows the weighted average fair value, which was determined
based upon the fair value of each option on the grant date utilizing the Black-Scholes
option-pricing model and the related assumptions (dollars in thousands, except per option amounts):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fair value of options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$3,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$2,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$4,030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average per option fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$5.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$5.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$6.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assumptions used for option grants:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD nowrap align="center">4.44% - 4.80%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD nowrap align="center">4.28% - 5.02%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD nowrap align="center">3.03% - 4.09%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected option holding period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3 - 5 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3 - 5 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3.5 - 5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD nowrap align="center">38% - 52%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD nowrap align="center">50% - 60%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD align="center">60%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD align="center">46%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD align="center">55%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD align="center">60%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">0</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The fair value of each option award granted during the periods presented was estimated&nbsp;using the
Black-Scholes option valuation model that uses the assumptions noted in the table above. Expected
volatilities are based on the historical volatility of our stock. We use historical data to
estimate option exercise and employee termination information within the valuation model; separate
groups of grantees that have similar
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>9. STOCK-BASED COMPENSATION (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">historical exercise behaviors are considered separately for valuation purposes. The expected term of options
granted is derived from&nbsp;the vesting period and historical information and represents the period of
time that options granted are expected to be outstanding. The risk-free rate&nbsp;used is the
zero-coupon U.S. Treasury bond rate in effect at the time of the grant whose maturity equals
the&nbsp;expected term of the option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of our non-vested options as of September&nbsp;30, 2007 and changes during the twelve months
then ended is presented below (in thousands, except per common share amounts):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Grant Date</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Fair Value per</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Common Share</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested at September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.58</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(463</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested at September&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We used historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture rate
used in fiscal 2007 was 2.5%. As of September&nbsp;30, 2007 the total unrecognized compensation cost
related to non-vested stock-based compensation arrangements net of expected forfeitures was $5.4
million and the related weighted average period over which it is expected to be recognized is
approximately 2.4&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At September&nbsp;30, 2007, the weighted average exercise price and remaining life of the stock options
are as follows (in thousands, except remaining life and exercise price):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="13" style="border-bottom: 1px solid #000000">Options Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Options Exercisable</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Range of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Contractual Life</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exercise Prices</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">( In Years)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Vested</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise Price</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$2.19  - $5.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">172</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.1</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">2.82</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">172</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">2.82</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$5.01  - $6.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">336</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.0</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">5.43</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">336</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">5.43</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$6.01  - $8.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">496</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3.5</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">7.12</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">496</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">7.12</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$8.01  - $10.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">362</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.0</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">9.61</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">361</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">9.61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$10.01  - $11.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,101</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.0</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">10.72</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">966</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">10.73</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$11.01  - $12.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">278</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.6</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">11.91</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">263</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">11.94</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$12.01 - $13.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">521</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.4</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">12.68</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">175</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">12.72</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$13.01 - $14.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">599</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.2</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">13.40</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">107</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">13.33</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$14.01 - $15.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">302</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.7</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">14.72</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">212</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">14.72</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$15.01 - $18.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">92</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7.3</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">15.67</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">82</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">15.72</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$18.01 - $27.69</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">167</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.7</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">25.61</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">167</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">25.61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$2.19 - $27.69</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,426</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.2</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">11.12</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,337</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">$</TD>
    <TD align="right" valign="top">10.54</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The total fair value of shares vested during fiscal 2007 was $2.8&nbsp;million, and during each of
fiscal 2006 and 2005 was $1.9&nbsp;million.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->67<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>10. SHARE RIGHTS PLAN</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have adopted a share rights plan. Each right entitles its holder to buy one one-hundredth of a
share of a new series of junior participating preferred stock at an exercise price of $115, subject
to adjustment. The rights are exercisable only if certain ownership considerations are met. We
will be entitled to redeem the rights prior to the rights becoming exercisable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>11. COMMITMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into various operating lease agreements for office facilities and equipment, the
last of which expires in fiscal 2017. The office facility leases generally require us to pay a
pro-rata share of the lessor&#146;s operating expenses. Certain operating leases contain escalation
clauses and are being amortized on a straight-line basis over the term of the lease. The following
schedule reflects future minimum rental commitments under noncancelable operating leases. These
minimum payments have not been reduced by minimum sublease rentals of an aggregate of $0.5&nbsp;million
for all future years due under noncancelable subleases.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Amount</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">
Fiscal Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(in thousands)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,076</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,429</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum payments required</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,453</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following schedule shows the composition of total rental expense for all operating leases for
the years ended September&nbsp;30 (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,921</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: sublease rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(183</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,738</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. EMPLOYEE BENEFIT PLANS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We currently have a savings and profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code (the Code), whereby eligible employees may contribute pre-tax earnings, not to exceed
amounts allowed under the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Employees may contribute up to 25% of their pre-tax earnings (not to exceed amounts allowed under
the Code). We provide a match of 100% on the first 3% of each employee&#146;s bi-weekly contribution
and a 50% match on the next 2% of each employee&#146;s bi-weekly contribution. In addition, we may make
contributions to the plan at the discretion of the Board of Directors. We provided matching
contributions of $1.1&nbsp;million, $0.9&nbsp;million and $0.8&nbsp;million in the fiscal years ended September
30, 2007, 2006 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>13. CONTINGENCIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;19, 2002, a consolidated amended class action complaint was filed in the United
States District Court for the Southern District of New York asserting claims relating to the
initial public offering (IPO)&nbsp;of NetSilicon and approximately 300 other public companies. The
complaint
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->68<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>13. CONTINGENCIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">names us
as defendants along with NetSilicon, certain of its officers and certain underwriters involved in NetSilicon&#146;s
IPO, among numerous others, and asserts, among other things, that NetSilicon&#146;s IPO prospectus
and registration statement violated federal securities laws because they contained material
misrepresentations and/or omissions regarding the conduct of NetSilicon&#146;s IPO underwriters in
allocating shares in NetSilicon&#146;s IPO to the underwriters&#146; customers. We believe that the
claims against the NetSilicon defendants are without merit and have defended the litigation
vigorously. Pursuant to a stipulation between the parties, the two named officers were
dismissed from the lawsuit, without prejudice, on October&nbsp;9, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2003, we elected to participate in a proposed settlement agreement with the plaintiffs
in this litigation. Had it been approved by the Court, this proposed settlement would have
resulted in a dismissal, with prejudice, of all claims in the litigation against us and
against any of the other issuer defendants who elected to participate in the proposed
settlement, together with the current or former officers and directors of participating
issuers who were named as individual defendants. This proposed settlement was conditioned on,
among other things, a ruling by the District Court that the claims against NetSilicon and
against the other issuers who had agreed to the settlement would be certified for class action
treatment for purposes of the proposed settlement, such that all investors included in the
proposed classes in these cases would be bound by the terms of the settlement unless an
investor opted to be excluded from the settlement in a timely and appropriate fashion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;5, 2006, the U.S. Court of Appeals for the Second Circuit issued a decision in
<U>In re Initial Public Offering Securities Litigation</U> that six purported class action
lawsuits containing allegations substantially similar to those asserted against us could not
be certified as class actions due, in part, to the Appeals Court&#146;s determination that
individual issues of reliance and knowledge would predominate over issues common to the
proposed classes. On January&nbsp;8, 2007, the plaintiffs filed a petition seeking rehearing
<U>en</U> <U>banc</U> of this ruling. On April&nbsp;6, 2007 the Court of Appeals denied the
plaintiffs&#146; petition for rehearing of the Court&#146;s December&nbsp;5, 2006 ruling. The Court of
Appeals, however, noted that the plaintiffs remained free to ask the District Court to certify
classes different from the ones originally proposed which might meet the standards for class
certification that the Court of Appeals articulated in its December&nbsp;5, 2006 decision. The
plaintiffs have since moved for certification of different classes in the District Court, and
that motion remains pending.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In light of the Court of Appeals&#146; December&nbsp;5, 2006 decision regarding certification of the
plaintiffs&#146; claims, the District Court entered an order on June&nbsp;25, 2007 terminating the
proposed settlement between the plaintiffs and the issuers, including NetSilicon. Because any
possible future settlement with the plaintiffs, if a settlement were ever to be negotiated and
ultimately agreed to, would involve the certification of a class action for settlement
purposes, the impact of the Court of Appeals&#146; rulings on the possible future settlement of the
claims against NetSilicon cannot now be predicted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Given that the proposed settlement has been terminated, we intend to continue to defend the
litigation vigorously. The litigation process is inherently uncertain and unpredictable,
however, and there can be no guarantee as to the ultimate outcome of this pending lawsuit. We
maintain liability insurance for such matters and expect that the liability insurance will be
adequate to cover any potential unfavorable outcome, less the applicable deductible amount of
$250,000 per claim. As of September&nbsp;30, 2007, we have accrued a liability for the deductible
amount of $250,000 which we believe reflects the amount of loss that is probable. In the
event we have losses that exceed the limits of the liability insurance, such losses could have
a material effect on our business and our consolidated results of operations or financial
condition.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->69<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>13. CONTINGENCIES (CONTINUED)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the matter discussed above, in the normal course of business, we are subject to
various claims and litigation, including patent infringement and intellectual property claims.
Our management expects that these various claims and litigation will not have a material
adverse effect on our consolidated results of operations or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>14. QUARTERLY FINANCIAL DATA (UNAUDITED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(in thousands, except per common share data)

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 0px solid #000000">Quarter ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Dec. 31</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Mar. 31</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">June 30</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Sept. 30</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">42,855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,819</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,576</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,047</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (1)(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,015</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>During 2007 and 2006, we recorded discrete income tax benefits of $4.3&nbsp;million and $1.6
million, respectively. Discrete income tax benefits for fiscal 2007 were recorded of $0.5&nbsp;million
in the first quarter, $2.9&nbsp;million in the third quarter and $0.9&nbsp;million in the fourth quarter
related to the reversal of income tax reserves of $3.6&nbsp;million associated with the closing of a
German tax audit and the statutory closing of a prior U.S. federal and state tax year and $0.7
million primarily due to the filing of U.S. amended tax returns, enactment of the extension of the
research and development tax credit, and adjustments to actual for items reported on the tax return
filed for fiscal 2006. Discrete income tax benefits for fiscal 2006 were recorded of $0.6&nbsp;million
in the third quarter and $1.0&nbsp;million in the fourth quarter related to the reversal of income tax
reserves of $1.6&nbsp;million primarily due to a settlement of tax audits with the French government.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>During the fourth quarter of fiscal 2006, we incurred a $2.0&nbsp;million pre-tax charge related to
in-process research and development.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->70<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None.
</DIV>
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9A. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Evaluation of Disclosure Controls and Procedures</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of the principal executive officer and principal financial
officer, of our disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;)). Based on this evaluation, the
principal executive officer and principal financial officer concluded that our disclosure controls
and procedures are effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Management&#146;s Report on Internal Control over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are responsible for establishing and maintaining adequate internal control over financial
reporting. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We assessed the effectiveness of our internal control over financial reporting as of September&nbsp;30,
2007 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO)&nbsp;in <I>Internal Control &#150; Integrated Framework</I>. Based on this assessment, we
concluded that our internal control over financial reporting was effective as of September&nbsp;30,
2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes in Internal Control Over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There have been no significant changes in our internal control over financial reporting during our
most recently completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9B. OTHER INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->71<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART III</B>
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE</B>

</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Executive Officers of the Registrant</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of the date of filing this Form 10-K, the following individuals were executive officers of the
Registrant:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Age</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Position</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Joseph T. Dunsmore
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">49</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman, President and Chief Executive Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Subramanian Krishnan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President, Chief Financial Officer and Treasurer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lawrence A. Kraft
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Sales and Marketing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Joel K. Young
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">43</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">Senior Vice President of Research and Development and Chief Technical Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Dunsmore joined our company in October&nbsp;1999 as President and Chief Executive Officer and a
member of the Board of Directors and was elected Chairman of the Board in May&nbsp;2000. Prior to
joining us, Mr.&nbsp;Dunsmore was Vice President of Access for Lucent Microelectronics, a
telecommunications company now known as Agere Systems Inc., since June&nbsp;1999. From October&nbsp;1998 to
June&nbsp;1999, he acted as an independent consultant to various high technology companies. From
February&nbsp;1998 to October&nbsp;1998, Mr.&nbsp;Dunsmore was Chief Executive Officer of NetFax, Inc., a
telecommunications company. From October&nbsp;1995 to February&nbsp;1998, he held executive management
positions at US Robotics and then at 3COM after 3COM acquired US Robotics in June&nbsp;1997. Prior to
that, Mr.&nbsp;Dunsmore held various marketing management positions at AT&#038;T Paradyne Corporation from
May&nbsp;1983 to October&nbsp;1995.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Krishnan was named Senior Vice President, Chief Financial Officer and Treasurer on February&nbsp;1,
1999, prior to which he served as our Vice President of Finance since January&nbsp;11, 1999. Prior to
joining us, he served as a principal with LAWCO Financial, an investment banking firm in
Minneapolis, Minnesota from January&nbsp;1997 to January&nbsp;1999. Prior to LAWCO, he served for 13&nbsp;years
with the Valspar Corporation as the Director of Corporate Financial Planning and Reporting and
Taxes and was primarily responsible for mergers, acquisitions and joint ventures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Kraft joined our company as Vice President of Americas Sales and Marketing in February&nbsp;2003 and
was named Senior Vice President of Sales and Marketing in November&nbsp;2005.&nbsp; Prior to joining us, Mr.
Kraft was Vice President of Marketing for Advanced Switching Communications (ASC), a provider of
broadband access platforms, from June&nbsp;1999 to February&nbsp;2002. &nbsp;From July&nbsp;1998 to October&nbsp;1998, Mr.
Kraft was Vice President of Marketing for NetFax, Inc., a telecommunications company. Mr.&nbsp;Kraft
also previously held the positions of Manager of Product Marketing at 3COM/U.S. Robotics, Vice
President of Marketing for ISDN Systems Corporation, and Group Products Manager for the Internet
access program at Sprint Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Young joined our company in July&nbsp;2000 as Vice President of Engineering and was named Vice
President of Research and Development and Chief Technical Officer in November&nbsp;2005.&nbsp; In October
2006, Mr.&nbsp;Young was named Senior Vice President of Research and Development and Chief Technical
Officer. Prior to joining us, Mr.&nbsp;Young served as a Vice President for Transcrypt International, a
provider of encryption products, in various engineering, sales and marketing positions from
February&nbsp;1996 to June&nbsp;2000.&nbsp; Before that, he held various engineering and management positions at
AT&#038;T and AT&#038;T Bell Laboratories from 1986 to 1996.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->72<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (CONTINUED)</B>
</DIV>

<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Code of Ethics</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We adopted a &#147;code of ethics&#148; within the meaning of Rule&nbsp;406 of Regulation&nbsp;S-K, which is applicable
to our senior financial management, including specifically our Chief Executive Officer, Chief
Financial Officer and Controller. A copy of this code of ethics is listed as an exhibit to this
report. We intend to satisfy our disclosure obligations regarding any amendment to, or a waiver
from, a provision of this code of ethics by posting such information on our website at
<u>www.digi.com.</u> We also have a &#147;code of conduct&#148; that applies to all directors, officers and
employees, a copy of which is available through our website (<u>www.digi.com</u>) under the &#147;About us &#150;
Investor Relations &#150; Corporate Governance&#148; caption.
</DIV>
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 12.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Equity Compensation Plan Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table gives information about the Company&#146;s Common Stock that may be issued upon the
exercise of options under all of the Company&#146;s existing equity compensation plans as of
September&nbsp;30, 2007.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3">(c)</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Securities</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Remaining</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(b)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Available for</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Securities to</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted-</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Future Issuance</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">be Issued Upon</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Under Equity</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Compensation</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Plans (Excluding</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Options,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Options,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Securities</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants and</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warrants and</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Reflected in</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Plan Category</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rights</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Rights</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Column&nbsp;(a))</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity Compensation
Plans Approved by
Security Holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,333,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.293.973 </TD>
    <TD nowrap>(1)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity Compensation
Plans Not Approved
by Security Holders
(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,205,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">-0-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,539,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,293,973</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes securities available for future issuance under stockholder
approved compensation plans other than upon the exercise of options,
warrants or rights, as follows: 2,479,966 shares under the Company&#146;s 2000
Omnibus Stock Plan and 1,814,007 shares under the Company&#146;s Employee
Stock Purchase Plan.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Relates to the Digi International Inc. Non-Officer Stock Option Plan only.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>The table does not include information for equity compensation plans
assumed by the Company pursuant to the acquisition of NetSilicon, Inc. by
the Company in February&nbsp;2002. Pursuant to the Agreement and Plan of
Merger, the Company assumed options to purchase 4,134,658 shares of
common stock of NetSilicon granted under three different plans, which
became exercisable for an aggregate of 2,687,528 shares of common stock
of the Company. All of the options assumed by the Company remain
subject to the assumed plans until the options are exercised or expire.
As of September&nbsp;30, 2007, 886,606 options remained outstanding at a
weighted average exercise price of $12.15. The Company cannot grant
additional awards under these assumed plans.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->73<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 12.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Equity Compensation Plan Not Approved by Stockholders&nbsp;&#151; Digi International Inc. Non-Officer Stock
Option Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In April&nbsp;1998, the Board adopted the Digi International Inc. Non-Officer Stock Option Plan (the
&#147;Non-Officer Plan&#148;). The Non-Officer Plan has not been approved by the stockholders of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Plan Administration</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Non-Officer Plan is administered by a committee of two or more members of the Board (the
Committee). The Committee may delegate all or any part of its authority to a one person committee
consisting of the Chief Executive Officer of the Company for purposes of granting awards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Shares&nbsp;Subject to the Non-Officer Plan</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2007, 1,205,949&nbsp;shares of the Company&#146;s common stock were subject to
outstanding awards granted under this Plan. No shares are available for future award grants, and
no additional awards may be made under this Plan. Pursuant to the Non-Officer Plan, the Committee
must adjust the number of shares and the purchase price per share to give effect to adjustments
made in the number of outstanding common stock of the Company pursuant to mergers, consolidations,
splits, combinations, or other changes in capitalization as described in the Non-Officer Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Eligibility</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All employees of the Company and its subsidiaries who are not also officers or directors of the
Company, and consultants to the Company or its subsidiaries, were eligible to receive awards under
the Non-Officer Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Incentive and Non-Statutory Stock Options</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Non-Officer Plan authorizes the grant of non-statutory stock options. Because the Non-Officer
Plan has not been approved by the Company&#146;s stockholders, under the Internal Revenue Code of 1986,
as amended, incentive stock options were not granted under the Non-Officer Plan. The exercise price
of an option was determined by the Committee. The exercise price could not be less than 50% of the
fair market value, as defined in the Non-Officer Plan, of the Company&#146;s common stock on the date
the option is granted. Stock options could be granted and exercised at such times as the Committee
may determine, provided that the term could not exceed ten years from the date of grant. The
purchase price for common stock purchased upon the exercise of stock options may be payable in
cash, bank draft or money order, by delivery of shares of Company common stock having a fair market
value on the date the option is exercised equal to all or any part of the option price of the
common stock being purchased or any combination of the above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Transferability and Termination of Options</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Non-Officer Plan allows the recipient to transfer options to members of his or her immediate
family under certain circumstances. Other than such transfers to family members, no option shall be
assignable or transferable by the recipient other than by will or the laws of descent and
distribution. If a recipient&#146;s employment or other relationship with the Company or its affiliates
is terminated for any reason other than death or disability, then any unexercised portion of such
recipient&#146;s award will generally be forfeited, except as provided in the Non-Officer Plan or such
recipient&#146;s agreement or by the Committee. Upon death or disability, any unexercised portion of
such recipient&#146;s award will automatically vest. Upon a change in control as described in the
Non-Officer Plan, the Committee shall declare all outstanding options cancelled at the time of the
change in control in exchange for cash in the amount described in the Non-Officer Plan unless
appropriate provisions have been made for the protection of the outstanding options by the
substitution of such options for options to purchase appropriate stock of the surviving entity in
the change in control.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->74<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 12.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Adjustments, Modifications, Termination</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Non-Officer Plan gives the Board the right to amend, suspend or discontinue the Non-Officer
Plan. Amendments to the Non-Officer Plan are subject to stockholder approval, however, if needed to
comply with applicable laws or regulations. The Committee may generally also alter or amend any
agreement covering an award granted under the Non-Officer Plan to the extent permitted by law.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->75<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART IV</B>
</DIV>

<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES</B>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(a)&nbsp;Consolidated Financial Statements and Schedules of the Company</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Operations for the fiscal years ended September&nbsp;30, 2007, 2006 and 2005</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Balance Sheets as of September&nbsp;30, 2007 and 2006</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Cash Flows for the fiscal years ended September&nbsp;30, 2007, 2006 and 2005</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Stockholders&#146; Equity and Comprehensive Income for the fiscal years ended <br>September&nbsp;30, 2007, 2006 and 2005</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Notes to Consolidated Financial Statements</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Schedule of Valuation and Qualifying Accounts</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report of Independent Registered Public Accounting Firm</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(b)&nbsp;Exhibits</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger among the Company, Dove Sub Inc. and NetSilicon,
Inc. dated as of October&nbsp;30, 2001 (excluding schedules and exhibits which the Registrant
agrees to furnish supplementally to the Securities and Exchange Commission upon request) (1)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase and assignment contract dated March&nbsp;20, 2005 between Embedded Solutions
AG, Klaus Flesch, Angelika Flesch and Digi International GmbH (excluding schedules and
exhibits which the Registrant agrees to furnish supplementally to the Securities and
Exchange Commission upon request) (2)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger among Digi International Inc., Karat Sub Inc. and
Z-World, Inc. dated as of May&nbsp;26, 2005 (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the Securities and Exchange Commission
upon request) (3)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger among Digi International Inc., Ocean Acquisition Sub
Inc. and MaxStream, Inc. dated as of July&nbsp;27, 2006 (excluding schedules and exhibits
which the Registrant agrees to furnish supplementally to the Securities and Exchange
Commission upon request) (4)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of the Company, as amended (5)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-Laws of the Company, as amended (6)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Rights Agreement, dated as of June&nbsp;10, 1998 between Digi International
Inc. and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest
Bank Minnesota, National Association), as Rights Agent (7)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated January&nbsp;26, 1999, to Share Rights Agreement, dated as of June&nbsp;10,
1998 between Digi International Inc. and Wells Fargo Bank Minnesota, National
Association (formerly known as Norwest Bank Minnesota, National Association), as Rights
Agent (8)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->76<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits (continued)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Stock Option Plan as Amended and Restated as of November&nbsp;27, 2006* (9)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of indemnification agreement with directors and officers of the Company (10)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Subramanian Krishnan dated March&nbsp;26, 1999 (11)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and Subramanian Krishnan dated February&nbsp;5, 2001* (12)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement between the Company and Joseph T. Dunsmore dated September&nbsp;27, 2006* (13)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Employee Stock Purchase Plan, as Amended and Restated,
of the Company as of November&nbsp;27, 2006, as approved by stockholders on January&nbsp;22, 2007*(14)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(f)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. 2000 Omnibus Stock Plan as Amended and Restated
as of November&nbsp;27, 2006, as approved by stockholders on January&nbsp;22, 2007* (15)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(g)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Non-Officer Stock Option Plan, as Amended and
Restated as of November&nbsp;27, 2006 (16)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Director Stock Option Plan (17)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Incentive and Non-Qualified Stock Option Plan (18)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(j)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. 2001 Stock Option and Incentive Plan (19)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(k)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option Agreement and Terms
and Conditions of Nonstatutory Stock Option Agreement* (20)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fiscal 2007 Executive Officer Compensation* (21)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Lawrence A. Kraft, dated February&nbsp;4, 2003* (22)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and Lawrence A. Kraft dated July&nbsp;30, 2007* (23)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(n)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Joel K. Young dated July&nbsp;30, 2007* (24)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics (25)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Independent Registered Public Accounting Firm</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Powers of Attorney</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief Executive Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->77<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)</B>
</DIV>
<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits (continued)</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR>
<td>&nbsp;</td>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief Financial Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;1350 Certification</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form&nbsp;10-K.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Annex A to the Company&#146;s Registration Statement on Form S-4
(File no. 333-74118).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 2(a) to the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 2005 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;2 to the Company&#146;s Form 8-K dated May&nbsp;26, 2005 (File no.
0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;2 to the Company&#146;s Form 8-K dated July&nbsp;27, 2006 (File
no. 0-17972)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 3(a) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 1993 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 3(b) to the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 2007 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;1 to the Company&#146;s Registration Statement on Form 8-A
dated June&nbsp;25, 1998 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;1 to Amendment No.&nbsp;1 to the Company&#146;s Registration
Statement on Form 8-A dated February&nbsp;5, 1999 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(10)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(b) to the Company&#146;s Registration Statement on Form
S-1 (File no. 33-30725).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(11)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;10(k) to the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 1999 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(12)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;10(e)(i) to the Company&#146;s Form 10-Q for the quarter
ended December&nbsp;31, 2000 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(13)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(d) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(14)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(b) to the Company&#146;s Form 10-Q for the quarter ended
December&nbsp;31, 2006 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(15)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-Q for the quarter ended
December&nbsp;31, 2006 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(16)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(g) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->78<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(17)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;4.3 to the Company&#146;s Registration Statement on Form S-8
dated February&nbsp;13, 2002 (File no. 333-82672).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(18)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;4.3 to the Company&#146;s Registration Statement on Form S-8
dated February&nbsp;13, 2002 (File no. 333-82670).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(19)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;4.3 to the Company&#146;s Registration Statement on Form S-8
dated February&nbsp;13, 2002 (File no. 333-82668).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(20)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 8-K dated September&nbsp;13, 2004
(File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(21)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Item&nbsp;1.01 of the Company&#146;s Form 8-K dated September&nbsp;29, 2006
(File no. 0-17972)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(22)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(m) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(23)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-Q for the quarter ended
June&nbsp;30, 2007 (File no. 0-17972)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(24)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(b) to the Company&#146;s Form 10-Q for the quarter ended
June&nbsp;30, 2007 (File no. 0-17972)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(25)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;14 to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2003 (File no. 0-17972).</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->79<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of Section&nbsp;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.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">DIGI INTERNATIONAL INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 6, 2007&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/  Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left"><FONT style="white-space: nowrap">President, Chief Executive Officer, Chairman, and Director</FONT>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 6, 2007&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/  Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><FONT style="white-space: nowrap">President, Chief Executive Officer, Chairman, and Director</FONT><br>
(Principal Executive Officer)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 6, 2007&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Subramanian Krishnan
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Subramanian Krishnan&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><FONT style="white-space: nowrap">Senior Vice President, Chief Financial Officer and Treasurer</FONT><br>
<FONT style="white-space: nowrap">(Principal Financial and Accounting Officer)</FONT>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>GUY C. JACKSON</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>KENNETH E. MILLARD</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>AHMED NAWAZ</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">A majority of the Board of Directors*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>WILLIAM N. PRIESMEYER</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>BRADLEY J. WILLIAMS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt;">
<TR valign="top">
    <TD width="2%">*</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Joseph T. Dunsmore, by signing his name hereto, does hereby sign this document on behalf of each
of the above named directors of the Registrant pursuant to Powers of Attorney duly executed by such
persons.</TD>
</tr>
</table>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="44%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 6, 2007&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Attorney-in-fact&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->80<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SCHEDULE II &#151; VALUATION AND QUALIFYING ACCOUNTS</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.</B>

</DIV>
<DIV align="center" style="font-size: 10pt"><B>(in thousands)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Charged</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(Credited) to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">beginning</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">costs and</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">end of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of period</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">expenses</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Deductions</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">period</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation account - doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;30, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">89      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(204</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">173      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(123</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">27      </TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">872</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Uncollectible accounts charged against allowance, net of recoveries</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->81<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT INDEX</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger among the Company,
Dove Sub Inc. and NetSilicon, Inc. dated as of
October&nbsp;30, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase and assignment contract dated March&nbsp;30, 2005
between Embedded Solutions AG, Klaus Flesch, Angelika
Flesch and Digi International GmbH
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and plan of Merger among Digi International
Inc., Karat Sub Inc. and <font style="white-space: nowrap">Z-World,</font> Inc. dated as of
May&nbsp;26, 2005 (excluding schedules and exhibits, which
the Registrant agrees to furnish supplementally to the
Securities and Exchange Commission upon request)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger among Digi International
Inc., Ocean Acquisition Sub Inc. and MaxStream, Inc.
dated as of July&nbsp;27, 2006 (excluding schedules and exhibits
which the Registrant agrees to furnish supplementally
to the Securities and Exchange Commission upon request)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of the Company,
as amended
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-Laws of the Company,
as amended
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Rights Agreement, dated as of June&nbsp;10, 1998
between Digi International Inc. and Wells Fargo Bank
Minnesota, National Association (formerly known as
Norwest Bank Minnesota, National Association), as
Rights Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated January&nbsp;26, 1999, to Share Rights
Agreement, dated as of June&nbsp;10, 1998 between Digi
International Inc. and Wells Fargo Bank Minnesota,
National Association (formerly known as Norwest
Bank Minnesota, National Association), as Rights Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Stock Option Plan as Amended
and Restated as of November&nbsp;27, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of indemnification agreement with directors
and officers of the Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Subramanian
Krishnan dated March&nbsp;26, 1999
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to the Agreement between the Company and
Subramanian Krishnan dated February&nbsp;5, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement between the Company and
Joseph T. Dunsmore, dated September&nbsp;27, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Employee Stock Purchase Plan,
as Amended and Restated of the Company as of
November&nbsp;27, 2006,
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(f)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. 2000 Omnibus Stock Plan as
Amended and Restated as of November&nbsp;27, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(g)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Non-Officer Stock Option Plan, as
Amended and Restated as of November&nbsp;27, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Director Stock
Option Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Incentive and
Non-Qualified Stock Option Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(j)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. 2001 Stock Option and Incentive Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(k)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option
Agreement and Terms and Conditions of Nonstatutory
Stock Option Agreement
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->82<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT INDEX (CONTINUED)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fiscal 2007 Executive Officer Compensation
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Lawrence A. Kraft,
dated February&nbsp;4, 2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and
Lawrence A. Kraft dated July&nbsp;30, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(n)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Joel K. Young
dated July&nbsp;30, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Independent Registered Public Accounting Firm
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Powers of Attorney
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;1350 Certification
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->83<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>2
<FILENAME>c22023exv21.htm
<DESCRIPTION>SUBSIDIARIES OF THE COMPANY
<TEXT>
<HTML>
<HEAD>
<TITLE>exv21</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 21</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Subsidiaries of the Company
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Digi International GmbH
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International (HK)&nbsp;Ltd.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International Kabushikikaisha
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International Limited
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International SARL
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ITK International, Inc.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">MaxStream, Inc.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NetSilicon, Inc.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Rabbit Semiconductor Inc.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International Spain S.A.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>3
<FILENAME>c22023exv23.htm
<DESCRIPTION>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;23
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We hereby consent to the incorporation by reference in the Registration Statements on Form&nbsp;S-3 (No.
333-138029) and Form&nbsp;S-8 (Nos. 333-144873, 333-144872, 333-00099, 333-23857, 333-57869, 333-53366,
333-55488, 333-82674, 333-82678, 333-82668, 333-82670, 333-82672) of Digi International Inc. of our
report dated November&nbsp;27, 2007 relating to the consolidated financial statements, financial
statement schedule and the effectiveness of internal control over financial reporting, which
appears in this Form 10-K.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">/s/ PricewaterhouseCoopers LLP<BR>
Minneapolis, Minnesota<BR>
December&nbsp;6, 2007

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>4
<FILENAME>c22023exv24.htm
<DESCRIPTION>POWERS OF ATTORNEY
<TEXT>
<HTML>
<HEAD>
<TITLE>exv24</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;24
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
4<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of December, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
4<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of December, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Subramanian Krishnan
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Subramanian Krishnan&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
27<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of November, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Guy C. Jackson
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Guy C. Jackson&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
26<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of November, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Kenneth E. Millard
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Kenneth E. Millard&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
24<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of November, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Ahmed Nawaz
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Ahmed Nawaz&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
26<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of November, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ William N. Priesmeyer
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">William N. Priesmeyer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DIGI INTERNATIONAL INC.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Subramanian Krishnan, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
27<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of November, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Bradley J. Williams
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Bradley J. Williams&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>




</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>5
<FILENAME>c22023exv31wxay.htm
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31wxay</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 31(a)</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Joseph T. Dunsmore, certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;I have reviewed this annual report on Form 10-K of Digi International Inc.;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;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 report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over
financial reporting; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit
committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: December&nbsp;6, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Joseph T. Dunsmore
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Joseph T. Dunsmore<BR></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President, Chief Executive Officer, and Chairman</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>6
<FILENAME>c22023exv31wxby.htm
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31wxby</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 31(b)</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Subramanian Krishnan, certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;I have reviewed this annual report on Form 10-K of Digi International Inc.;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;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 report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control over
financial reporting; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit
committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: December&nbsp;6, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Subramanian Krishnan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subramanian Krishnan<BR>
Senior Vice President, Chief Financial Officer and Treasurer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>7
<FILENAME>c22023exv32.htm
<DESCRIPTION>SECTION 1350 CERTIFICATION
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;32
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><u>CEO AND CFO CERTIFICATION OF PERIODIC REPORT</u>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, each of the undersigned certifies that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Annual Report on Form 10-K of the Company for the year ended
September&nbsp;30, 2007 (the &#147;Report&#148;) fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Joseph T. Dunsmore</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Joseph T. Dunsmore<BR>
President, Chief Executive Officer, Chairman and Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Subramanian Krishnan</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subramanian Krishnan<BR>
Senior Vice President, Chief Financial Officer
and Treasurer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>




</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>8
<FILENAME>c22023c2202301.gif
<DESCRIPTION>GRAPHIC
<TEXT>
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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
