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<SEC-DOCUMENT>0000950137-07-001630.txt : 20070207
<SEC-HEADER>0000950137-07-001630.hdr.sgml : 20070207
<ACCEPTANCE-DATETIME>20070207123740
ACCESSION NUMBER:		0000950137-07-001630
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20061231
FILED AS OF DATE:		20070207
DATE AS OF CHANGE:		20070207

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:			0930

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-17972
		FILM NUMBER:		07587030

	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-Q
<SEQUENCE>1
<FILENAME>c11903e10vq.htm
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</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 SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549<BR>
<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-Q<BR>
<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>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>For the quarterly period ended: December&nbsp;31, 2006</B>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><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="Center" style="font-size: 10pt; margin-top: 6pt"><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="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&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">&nbsp;</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">&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 <BR>
incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification Number)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>11001 Bren Road East<BR>
Minnetonka, Minnesota</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom"><B>55343</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
    <TD>&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">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"> (Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>(952)&nbsp;912-3444</B>

</DIV>
<DIV align="center" style="font-size: 10pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 2pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>
(Registrant&#146;s telephone number, including area code)</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)&nbsp;has been subject to such filing requirements for the past 90&nbsp;days.<BR>
Yes <FONT face="Wingdings">&#254;</FONT> No <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 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">Large accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accelerated filer <FONT face="Wingdings">&#254;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&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). Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;31, 2007, there were 25,148,046 shares of the registrant&#146;s $.01 par value Common Stock
outstanding.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; 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">&nbsp;</H5><P>

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

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

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</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="5%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="1%">&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 nowrap align="center" colspan="3" 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"><A href="#101">PART I.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#101"> FINANCIAL INFORMATION</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#102">ITEM 1.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#102"> Condensed Consolidated Financial Statements (unaudited):</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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"><A href="#103"> Condensed Consolidated Statements of Operations for the three
months ended December&nbsp;31, 2006 and 2005
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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"><A href="#104"> Condensed Consolidated Balance Sheets as of
December&nbsp;31, 2006 and September&nbsp;30, 2006
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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"><A href="#105"> Condensed Consolidated Statements of Cash Flows for
the three months ended December&nbsp;31, 2006 and 2005
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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"><A href="#106"> Notes to Condensed Consolidated Financial
Statements
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#107"> ITEM 2.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107"> Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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">Forward-looking Statements
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#108">ITEM 3.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#108"> Quantitative and Qualitative Disclosures About Market Risk
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">21</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#109">ITEM 4.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109"> Controls and Procedures
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">21</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#110">PART II.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#110"> OTHER INFORMATION</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#111">ITEM 1.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111"> Legal Proceedings
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#112">ITEM 1A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112"> Risk Factors
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#113">ITEM 2.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113"> Unregistered Sales of Equity Securities and Use of Proceeds
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#114">ITEM 3.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#114"> Defaults Upon Senior Securities
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#115">ITEM 4.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#115"> Submission of Matters to a Vote of Securities Holders
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#116">ITEM 5.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116"> Other Information
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap 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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#117">ITEM 6.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#117"> Exhibits
</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c11903exv10wxay.htm">Omnibus Stock Plan</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c11903exv10wxby.htm">Employee Stock Purchase Plan</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c11903exv31wxay.htm">Certification</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c11903exv31wxby.htm">Certification</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c11903exv32.htm">Certification</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /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="101"></A>
</DIV>

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

<DIV align="left">
<A name="102"></A>
</DIV>

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


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DIGI INTERNATIONAL INC.</B>
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(UNAUDITED)</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three months ended December 31,</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">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>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">(in thousands, except per common share data)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<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">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">41,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,376</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">18,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,010</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">1,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,168</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">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">18,198</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">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>
</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">8,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,752</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">5,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,815</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">3,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,753</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:45px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,320</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">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,878</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">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(25</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(41</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <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">(43</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">Total other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</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:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,211</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,028</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:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,183</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">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.10</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:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.09</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">Weighted average common shares, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,781</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">Weighted average common shares, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,486</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="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of the condensed consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /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>DIGI
INTERNATIONAL INC.</B>
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><B>CONDENSED CONSOLIDATED BALANCE SHEETS<BR>
(UNAUDITED)</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <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">2006</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>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">(in thousands, except share data)</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:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,674</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,005</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:30px; text-indent:-15px">Accounts receivable, net</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">20,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,636</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:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,528</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,625</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">Property, equipment and improvements, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,621</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">29,553</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">65,941</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">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,026</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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">229,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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">
    <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" style="background: #cceeff">
    <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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital lease obligations, current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">381</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,748</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,712</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,851</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,592</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">21,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,284</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">Capital lease obligations, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">625</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">7,559</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">29,849</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:30px; 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:30px; text-indent:-15px">Common stock, $.01 par value; 60,000,000 shares authorized;
27,804,591 and 27,748,640 shares issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">278</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:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,165</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:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,811</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:30px; text-indent:-15px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,319</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:30px; text-indent:-15px">Treasury stock, at cost, 2,694,045 and 2,711,496 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,055</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:45px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,518</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:45px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">229,367</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="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of the condensed consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /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>DIGI
INTERNATIONAL INC.</B>
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(UNAUDITED)</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three months ended December 31,</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">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>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">(in thousands)</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,183</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; 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>
</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">645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">613</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">1,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,907</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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">(60</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(187</TD>
    <TD nowrap>)</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">765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">531</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>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(708</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(143</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Changes in operating assets and 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:105px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">543</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,930</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(556</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(776</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(365</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Accounts payable and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,444</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,800</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:105px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,252</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 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:105px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,270</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" style="background: #cceeff">
    <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>
</TR>
<TR valign="bottom">
    <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">(16,941</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,720</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">20,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,111</TD>
    <TD>&nbsp;</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>
</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">(688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(259</TD>
    <TD nowrap>)</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 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:105px; text-indent:-15px">Net cash provided by (used in) investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,868</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"><!-- 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">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on capital lease obligations and long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(103</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(143</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</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">515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,684</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">191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114</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 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:105px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,842</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" style="background: #cceeff">
    <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">246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(276</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 increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,032</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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>
</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">Cash and cash equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,958</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="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of the condensed consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /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>DIGI INTERNATIONAL INC.</B>
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR>
(UNAUDITED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 10px;text-indent: -10px">1. BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Basis of Presentation</I>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The interim unaudited condensed consolidated financial statements included in this Form 10-Q
have been prepared by Digi International Inc. (the Company or Digi) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures, normally included in consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States of America, have been
condensed or omitted, pursuant to such rules and regulations. These condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements
and related notes thereto, including the summary of significant accounting policies, presented
in the Company&#146;s 2006 Annual Report on Form 10-K as filed with the SEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The condensed consolidated financial statements presented herein reflect, in the opinion of
management, all adjustments which consist only of normal, recurring adjustments necessary for
a fair statement of the condensed consolidated financial position and the condensed
consolidated results of operations and cash flows for the periods presented. The condensed
consolidated results of operations for any interim period are not necessarily indicative of
results for the full year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Recently Issued Accounting Pronouncements</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In July, 2006 the FASB issued Interpretation No.&nbsp;48 (&#147;FIN 48&#148;) &#147;Accounting for Uncertainty in
Income Taxes &#150; an interpretation of FASB Statement No.&nbsp;109.&#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 will be
effective for the Company beginning October&nbsp;1, 2007. The Company is in the process of
determining the effect, if any, that the adoption of FIN 48 will have on its consolidated
financial statements. However, the Company does expect to reclassify a portion of its
unrecognized tax benefits from current to non-current liabilities because 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">2. COMPREHENSIVE INCOME
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Comprehensive income was 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="6">Three months ended</TD>
    <TD>&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">December 31,</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">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 income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,183</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation gain (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(254</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">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,929</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>


<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. NET INCOME PER COMMON SHARE
</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 potentially dilutive common
shares outstanding during the period. Potentially dilutive common shares of the Company&#146;s
stock 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="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">Three months ended December 31,</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">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,183</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">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator for basic net income per common
share &#151; weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,781</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; 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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Employee stock options and employee
stock purchase plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705</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">Denominator for diluted net income per common
share &#151; adjusted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,486</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">Net income per common share, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.10</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.09</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">Potentially dilutive common shares related to stock options to purchase 562,613 and
1,365,513 common shares at December&nbsp;31, 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
anti-dilutive.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">4. STOCK-BASED COMPENSATION
</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 the Company&#146;s 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 all of the
Company&#146;s plans 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 the Company, including consultants, advisers and directors. Options

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. STOCK-BASED COMPENSATION (CONTINUED)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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. The exercise price for ISOs and non-employee director options granted under
the Stock Option Plan is set at the fair market value of the Company&#146;s 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 is set by the Compensation Committee of the Board of
Directors and is not less than 50% of the fair market value 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 the Company&#146;s 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 the
Compensation Committee but shall not be less than the fair market value of the Company&#146;s common
stock based on the closing price on the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Additionally, the Company has outstanding stock options for shares of the Company&#146;s stock
under various plans assumed in connection with its prior acquisition of NetSilicon, Inc. (the
Assumed Plans). Additional awards cannot be made by the Company under the Assumed Plans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Also, the Company sponsors 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 Common Stock of the
Company that may be purchased under the plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective October&nbsp;1, 2005 the Company adopted Statement of Financial Accounting Standard No.
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 the quarters ended December
31, 2006 and 2005 includes approximately $0.5&nbsp;million and $0.1&nbsp;million, respectively related
to awards issued subsequent to September&nbsp;30, 2005 and $0.3&nbsp;million and $0.4&nbsp;million,
respectively, related to nonvested awards issued prior to October&nbsp;1, 2005 using the intrinsic
value method of accounting.
</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 for the three months ended December&nbsp;31, 2006 and 2005 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="6" style="border-bottom: 1px solid #000000">Three months ended December 31,</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">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">$</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20</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">219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126</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">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127</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">366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258</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:30px; text-indent:-15px">Total stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">531</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>


<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. STOCK-BASED COMPENSATION (CONTINUED)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">FAS 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 Condensed Consolidated Statement of
Cash Flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of option activity under the Plans as of December&nbsp;31, 2006 and changes during the
three 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="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 nowrap align="center" colspan="2">Weighted Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted 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">Exercise Price per</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">Common Share</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</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, 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><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">(485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.42</TD>
    <TD>&nbsp;</TD>
    <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">(56</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.21</TD>
    <TD>&nbsp;</TD>
    <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">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.54</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 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><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,579</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 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 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
the quarter was $0.3&nbsp;million. The weighted average fair value of options granted during the
three months ended December&nbsp;31, 2006 was $5.93 and was determined based upon the fair value of
each option on the grant date, utilizing the Black-Scholes option-pricing model and the
following assumptions:
</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">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">4.44% - 4.65</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected option holding period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">4 - 5 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">48% - 52</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">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
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 the Company&#146;s stock.
The Company uses historical data to estimate option exercise and employee termination
information within the valuation model; separate groups of grantees that have similar
historical exercise behaviors are considered separately for valuation purposes. The expected
term of options granted is derived from the vesting period and historical information and
represents the period of time that options granted are expected to be outstanding. The
risk-free rate used is based on the zero-coupon U.S. Treasury bond rate in effect at the time
of the grant whose maturity equals the expected term of the option. These rates have been
converted to continuously compounded equivalent rates.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. STOCK-BASED COMPENSATION (CONTINUED)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of the Company&#146;s nonvested options as of December&nbsp;31, 2006 and changes during the
three 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="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 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">$</TD>
    <TD align="right">5.33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.93</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(188</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.92</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">The Company used historical data to estimate pre-vesting forfeiture rates. The
pre-vesting forfeiture rate used in the first quarter of fiscal 2007 was 2.5%. As of December
31, 2006 the total unrecognized compensation cost related to nonvested stock-based
compensation arrangements net of expected forfeitures was $6.9&nbsp;million and the related
weighted average period over which it is expected to be recognized is approximately 3.0&nbsp;years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">5. ACQUISITIONS
</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, the Company 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
27, 2006. The Company did not replace MaxStream&#146;s outstanding options with Digi options. The
value of the Company&#146;s 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 have been deposited to
an escrow fund established at Wells Fargo Bank, Minnesota. These amounts will be held in
escrow for a period not to exceed one year from the date of closing to satisfy possible claims
that may arise pursuant to specific representation and warranty sections of the merger
agreement. The escrowed amounts of cash and stock have been included in the determination of
the purchase consideration on the date of acquisition because management believes the outcome
of the representation and warranty matters is determinable beyond a reasonable doubt.
</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 $26.4&nbsp;million and
a charge of $2.0&nbsp;million for acquired in-process research and development. The Company
believes that the acquisition resulted in the recognition of goodwill primarily because MaxStream&#146;s wireless technologies and products
significantly expand
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. ACQUISITIONS (CONTINUED)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi&#146;s
wireless offering, covering both short and medium range distances using embedded modules and
boxed/packaged solutions and provides the capability to provide our customers end-to-end
wireless solutions.
</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 had occurred as of October&nbsp;1, 2005. Pro forma adjustments
include amortization of identifiable intangible assets associated with the MaxStream acquisition.
Had the Company acquired MaxStream as of October&nbsp;1, 2005, net sales, net income and net income per
share would have changed to the pro forma amounts 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="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="7" style="border-bottom: 1px solid #000000">Three months ended December 31, 2005</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">Pro forma</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">As Reported</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">$</TD>
    <TD align="right">36,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,376</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">$</TD>
    <TD align="right">2,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,183</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">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.10</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">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</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 acquisition occurred as of the
beginning of fiscal 2006, 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: 12pt">6. SELECTED BALANCE SHEET DATA
(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">December 31,</TD>
    <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">2006</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">$</TD>
    <TD align="right">20,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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">636</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: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">&nbsp;</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">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" 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:45px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Work in process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,260</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:45px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,909</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: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 align="left">$</TD>
    <TD align="right">24,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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">
    <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:45px; text-indent:-15px">Product warranty accrual</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</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:45px; text-indent:-15px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,609</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:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,592</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">Inventories are stated at the lower of cost or market value, with cost determined using the
first-in, first-out method.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amortized identifiable intangible assets were 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="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="11" style="border-bottom: 1px solid #000000">December 31, 2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">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">Accum.</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">Accum.</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">amort.</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">amort.</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">$</TD>
    <TD align="right">48,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(32,653</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</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">(1,990</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450</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">7,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,103</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,601</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">(341</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">359</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">11,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,750</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; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(40,849</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</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; &nbsp; &nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amortization expense was $1.9&nbsp;million and $1.8&nbsp;million for the three months ended
December&nbsp;31, 2006 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Estimated amortization expense related to identifiable intangible assets for the remainder of
fiscal 2007 and the five succeeding fiscal 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="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">2007 (nine months)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,644</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,386</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,036</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,640</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,514</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The changes in the carrying amount of goodwill were 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="6" style="border-bottom: 1px solid #000000">Three months ended December 31,</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">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">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">Purchase price adjustment &#151; FS Forth</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">(147</TD>
    <TD nowrap>)</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 align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33</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">Ending balance, December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38,495</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">During the three months ended December&nbsp;31, 2005, the purchase price of FS Forth, acquired
in fiscal year 2005, was reduced as a result of a change in certain tax liabilities, as
defined in the purchase agreement. A payment of $0.8&nbsp;million was made in October&nbsp;2006 as
contingent consideration based on the achievement of the milestones identified in the merger
agreement. Future contingent consideration of up to $1.2&nbsp;million may be payable to FS Forth
based upon the achievement of certain milestones (see Note 10).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">8. INCOME TAXES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the first quarter of fiscal 2007 income taxes have been provided at an effective rate of
25.1% compared to 32.0% for the first quarter of fiscal 2006. On December&nbsp;9, 2006, Congress
passed H.R. 6111, the &#147;Tax Relief and Health Care Act of 2006&#148;, which included an extension of the research credit that
previously expired on December&nbsp;31, 2005. As a result of the extension, the Company recorded a
benefit of $0.5&nbsp;million in the first quarter of fiscal 2007 for research and development
credits earned during the last three fiscal quarters of 2006. The additional
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /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>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">research and development credits were accounted for
as a discrete event in the first quarter of fiscal 2007. The effective tax rates for both the
first three months of fiscal 2007 and 2006 are lower than the U.S. statutory rate of 35.0%
primarily due to the utilization of income tax credits and the combined phase-out of the
extraterritorial income exclusion and the phase-in of the U.S. domestic production activities
deduction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company expects its annualized 2007 income tax rate to be approximately 33% to 33.5%.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">9. FINANCIAL GUARANTEES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company, in general, warrants its products to be free from defects in material and
workmanship under normal use and service for a period of up to five years from the date of
receipt. The Company has the option to repair or replace products it deems defective with
regard 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 incidence and are evaluated on an ongoing basis to ensure the
adequacy of the warranty reserve. The following table summarizes the activity associated with
the product warranty accrual (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="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="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>&nbsp;</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 (1)</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">December 31</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">964</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</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">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,068</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>Warranties issued includes a decrease in estimate adjustment of $132,000 and $117,000 in the
first quarter of fiscal 2007 and 2006, respectively.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company is not responsible and does not warrant that custom software versions created
by original equipment manufacturer (OEM)&nbsp;customers based upon the Company&#146;s software source
code will function in a particular way, will conform to any specifications or are fit for any
particular purpose and does 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: 12pt">10. CONTINGENCIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Contingent obligations</I>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective April&nbsp;1, 2005, the Company acquired FS Forth-Systeme GmbH/Sistemas Embebidos S.A.
(collectively referred to as FS Forth) from Embedded Solutions AG of Germany. The purchase
price of $5.6&nbsp;million in cash includes $0.8&nbsp;million of contingent consideration paid in
October&nbsp;2006, based on the achievement of milestones identified in the merger agreement.
Additional contingent consideration of up to $1.2&nbsp;million is payable on October&nbsp;1, 2007 if FS
Forth achieves certain future milestones.
</DIV>

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


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</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>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)</B>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> names as
defendants the Company, 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. The Company believes
that the claims against the NetSilicon defendants are without merit and has 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, the Company elected to participate in a proposed settlement agreement with the
plaintiffs in this litigation. If ultimately approved by the Court, this proposed settlement
would result in a dismissal, with prejudice, of all claims in the litigation against the
Company and against any of the other issuer defendants who elect to participate in the
proposed settlement, together with the current or former officers and directors of
participating issuers who were named as individual defendants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Consummation of the proposed settlement remains conditioned upon obtaining approval by the
Court. On September&nbsp;1, 2005, the Court preliminarily approved the proposed settlement and
directed that notice of the terms of the proposed settlement be provided to class members.
Thereafter, the Court held a fairness hearing on April&nbsp;24, 2006, at which objections to the
proposed settlement were heard. After the fairness hearing, the Court took under advisement
whether to grant final approval to the proposed settlement.
</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 the Company
may 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
banc</U> of the Second Circuit Court of Appeals&#146; December&nbsp;5, 2006 ruling. U.S. District Judge
Scheindlin has ordered that all proceedings in the consolidated cases brought against the
Company and against the roughly 300 other issuers sued in substantially similar cases
(including proceedings relating to the proposed settlement) will be stayed pending the ruling
by the Court of Appeals on whether to entertain that petition for rehearing. As a result of
that filing, the impact, if any, of the Court of Appeals&#146; ruling on the viability of the
proposed settlement cannot yet be determined.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If the proposed settlement is not consummated, the Company intends to continue to defend the
litigation vigorously. The litigation process is inherently uncertain and unpredictable,
however, there can be no guarantee as to the ultimate outcome of this pending lawsuit. The
Company maintains liability insurance for such matters and expects 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 December&nbsp;31, 2006, the Company has accrued a
liability for the deductible amount of $250,000 which the Company believes reflects the amount
of loss that is probable. In the event the Company has losses that exceed the limits of the
liability insurance, such losses could have a material effect on the business, or consolidated
results of operations or financial condition of the Company.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This Form 10-Q 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 management as of the time of such statements and relate to, among other things,
expectations of the business environment in which the Company operates, projections of future
performance, perceived opportunities in the market and statements regarding the Company&#146;s
mission and vision. Forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or achievements of the
Company to differ materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements. The Company undertakes 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">The future operating results and performance trends of the Company may be affected by a number
of factors, including, without limitation, those described under Item&nbsp;1A, &#147;Risk Factors&#148; in
the Company&#146;s Annual Report on Form 10-K for the year ended September&nbsp;30, 2006. Those risk
factors, and other risks, uncertainties and assumptions identified from time to time in the
Company&#146;s filings with the Securities and Exchange Commission, including without limitation,
its quarterly reports on Form 10-Q and its registration statements, could cause the Company&#146;s
actual future results to differ from those projected in the forward-looking statements as a
result of the factors set forth in the Company&#146;s 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" style="font-size: 10pt; margin-top: 12pt">CRITICAL ACCOUNTING POLICIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A description of the Company&#146;s critical accounting policies was provided in the Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations section of the
Company&#146;s Annual Report on Form 10-K for the year ended September&nbsp;30, 2006.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi operates 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. Digi
places a high priority on development of innovative products that provide differentiated
features and functions and allow for ease of integration with customers&#146; applications. The
Company competes 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.
</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; margin-left: 45px; text-indent: -45px"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company intends to continue to extend its current product lines with next generation
commercial grade device networking products and technologies for targeted vertical markets,
including but not limited to point of sale, industrial automation, office automation, medical
and building controls. The Company believes that there is a market trend of device
connectivity in these vertical commercial applications that will require communications
intelligence or connectivity to the network or the Internet. These devices will be used for
basic data communications, management, monitoring and control, and maintenance. The Company
believes that it is well positioned to leverage its current products and technologies to take
advantage of this market trend.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company anticipates that growth in the future will result from both products that are
developed internally as well as from products that are acquired, and that the growth rate from
products developed internally will increase as the multi-port serial adapters and the network
interface cards (NICs) near the end of their product life cycles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#149; Net sales of $41.8&nbsp;million, for the three months ended December&nbsp;31, 2006, represented
an increase of $8.4&nbsp;million, or 25.3%, compared to net sales of $33.4&nbsp;million for the three
months ended December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#149; Gross profit margin decreased to 52.6% compared to 54.5% for the three months ended
December&nbsp;31, 2006 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#149; Total operating expenses for the three months ended December&nbsp;31, 2006 were $17.7
million, or 42.3% of net sales, compared to $15.3&nbsp;million, or 45.9% of net sales, for the
three months ended December&nbsp;31, 2005, an increase of $2.4&nbsp;million or 15.6%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#149; Net income increased $1.6&nbsp;million to $3.8&nbsp;million, or $0.15 per diluted share, for the
three months ended December&nbsp;31, 2006, compared to $2.2&nbsp;million, or $0.09 per diluted share for
the three months ended December&nbsp;31, 2005. As a result of the extension of the research and
development credit for two additional years beyond calendar 2005, a benefit for research and
development credits earned during the last three quarters of fiscal 2006 was recorded during
the first quarter of fiscal 2007, resulting in an additional tax benefit of $0.5&nbsp;million or
$0.02 per diluted share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#149; The Company&#146;s net working capital position (total current assets less total current
liabilities) increased $7.2&nbsp;million to $90.5&nbsp;million during the three months ended December
31, 2006 and its current ratio was 5.2 to 1 as of that date. Cash and cash equivalents and
marketable securities increased $2.6&nbsp;million to $61.5&nbsp;million during the period. At December
31, 2006, the Company had no debt other than capital lease obligations.
</DIV>



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


<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><DIV style="margin-left: 45px; text-indent: -45px"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B></DIV></TD>
</TR>

</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table sets forth selected information derived from the Company&#146;s interim
condensed consolidated statements of operations expressed in dollars, as a percentage of net
sales and as a percentage of change from period-to-period for the periods indicated (dollars
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="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 nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Three months ended December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">% increase</TD>
    <TD>&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">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">(decrease)</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">$</TD>
    <TD align="right">41,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,376</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">25.3</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)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.1</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">1,148</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">1,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.7</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>&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">22,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.6</TD>
    <TD>&nbsp;</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">54.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.0</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>
</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">8,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.8</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">5,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,815</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">24.0</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">3,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.7</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.6</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income and other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131.5</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.9</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>&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 align="left">$</TD>
    <TD align="right">3,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">74.2 </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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales for the three months ended December&nbsp;31, 2006 were $41.8&nbsp;million compared to net
sales of $33.4&nbsp;million for the three months ended December&nbsp;31, 2005, or an increase of $8.4
million or 25.3%. Net sales of products acquired as a result of the MaxStream acquisition
were $4.6&nbsp;million in the first quarter of fiscal 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following summarizes the Company&#146;s net sales for the periods 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="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="14" style="border-bottom: 1px solid #000000">Three months ended December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</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 nowrap align="left">($ in thousands)</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">Increase</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">%</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">$</TD>
    <TD align="right">25,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">60.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">57.9 </TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">30.2 </TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Embedded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">41,811</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">$</TD>
    <TD align="right">33,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">25.3</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 Company&#146;s non-embedded products net sales, including MaxStream product net sales,
increased $5.8&nbsp;million or 30.2% for the three months ended December&nbsp;31, 2006 compared to the
three months ended December&nbsp;31, 2005. Product introductions associated with net sales of
network connected products, USB, cellular gateways and MaxStream non-embedded products
increased net sales by $6.1&nbsp;million for the three months ended December&nbsp;31, 2006 as compared
to the three months ended December&nbsp;31, 2005. Multi-port serial adapter products net sales
declined by $0.3&nbsp;million in the comparable three month periods described above as this product
line continues to mature.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Embedded products net sales, including MaxStream product net sales, increased $2.6&nbsp;million or
18.5% for the three months ended December&nbsp;31, 2006 compared to the three months ended December
31, 2005. Net sales of embedded modules and microprocessors increased net sales by $3.8
million for the three months ended December&nbsp;31, 2006 compared to the three months ended
December&nbsp;31, 2005, offsetting the decline of $1.2&nbsp;million of NIC net sales for the three
months ended December&nbsp;31, 2006 as compared to the three
months ended December&nbsp;31, 2005. We expect sales of NICs to be less than 1% of quarterly net
sales in the future since our OEM customers have migrated from NICs to software only
solutions.
</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: 6pt; margin-left: 45px; text-indent: -45px"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Fluctuation in foreign currency rates compared to the same period one year ago had a favorable
impact on net sales of $0.5&nbsp;million in the three month period ended December&nbsp;31, 2006 and an
unfavorable impact on net sales of $0.4&nbsp;million in the three month period ended December&nbsp;31,
2005.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gross profit margin for the three months ended December&nbsp;31, 2006 was 52.6% compared to 54.5%
for the three months ended December&nbsp;31, 2005. The decrease in gross profit margin was
primarily due to lower sales of multi-port serial adapters and NICs with higher gross profit
margins, as well as higher manufacturing expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company anticipates that its gross profit margins will continue to be consistent with
current levels, including amortization of purchased and core
technology of 2.5% - 3%.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total operating expenses for the three months ended December&nbsp;31, 2006 were $17.7&nbsp;million, or
42.3% of net sales, compared with $15.3&nbsp;million, or 45.9% of net sales, for the three months
ended December&nbsp;31, 2005. The increase in operating expenses is attributable to the inclusion
of operating expenses pertaining to MaxStream and variable compensation expenses related to
the increase in revenue, partially offset by a reduction in legal fees compared to the first
quarter of fiscal 2006. Operating expenses as a percent of net sales decreased by 3.6
percentage points, or 15.6%, in the first quarter of 2007 compared to the first quarter of
2006 as the Company continues to focus on controlling expenses while increasing revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales and marketing expenses for the three months ended December&nbsp;31, 2006 were $8.1&nbsp;million,
or 19.5% of net sales, compared to $6.8&nbsp;million, or 20.2% of net sales for the three months
ended December&nbsp;31, 2005. The net increase in sales and marketing expenses of $1.3&nbsp;million is
primarily due to increased ongoing expenses of $0.7&nbsp;million as the result of the acquisition
of Maxstream in the fourth quarter of fiscal 2006 and $0.6&nbsp;million of salaries, commissions
and other compensation related expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expenses for the three months ended December&nbsp;31, 2006 were $6.0
million, or 14.3% of net sales, compared to $4.8&nbsp;million, or 14.4% of net sales for the three
months ended December&nbsp;31, 2005. The net increase in research and development expenses of $1.2
million is due primarily to increased ongoing expenses of $0.4&nbsp;million as a result of the
acquisition of MaxStream in the fourth quarter of fiscal 2006, an increase of $0.4&nbsp;million in
compensation related expenses and an increase of $0.4&nbsp;million due to various chip development
projects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">General and administrative expenses were $3.6&nbsp;million, or 8.5% of net sales, for the three
months ended December&nbsp;31, 2006 compared to $3.8&nbsp;million, or 11.3% of net sales for the three
months ended December&nbsp;31, 2005. The net decrease in general and administrative expenses of
$0.2&nbsp;million was due primarily to decreased legal fees of $0.7&nbsp;million compared to the three
months ended December&nbsp;31, 2005, offset by increased ongoing expenses of $0.4&nbsp;million as a
result of the MaxStream acquisition.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 45px; text-indent: -45px"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">INTEREST INCOME AND OTHER, NET
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Interest income and other, net was $0.8&nbsp;million for the three months ended December&nbsp;31, 2006
compared to $0.3&nbsp;million for the three months ended December&nbsp;31, 2005. The Company realized
interest income on marketable securities and cash and cash equivalents of $0.8&nbsp;million and
$0.4&nbsp;million for the three month periods ended December&nbsp;31, 2006 and 2005, respectively, due
to higher average interest rates in the first quarter of fiscal 2007 compared to the first
quarter of fiscal 2006, and an increase in the average invested balance.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the three months ended December&nbsp;31, 2006, income taxes have been provided at an effective
rate of 25.1% compared to 32.0% for the three months ended December&nbsp;31, 2005. On December&nbsp;9,
2006, Congress passed H.R. 6111, the &#147;Tax Relief and Health Care Act of 2006&#148;, which included
an extension of the research credit previously expired on December&nbsp;31, 2005. As a result of
the extension, the Company recorded a benefit of $0.5&nbsp;million in the first quarter of fiscal
2007 for research and development credits earned during the last three fiscal quarters of
2006. The additional research and development credits were accounted for as a discrete event
in the first quarter of fiscal 2007. The effective tax rates for both the first three months
of fiscal 2007 and 2006 are lower than the U.S. statutory rate of 35.0% primarily due to the
utilization of income tax credits and the combined phase-out of the extraterritorial income
exclusion and the phase-in of the U.S. domestic production activities deduction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company expects its annualized 2007 income tax rate to be approximately 33% to 33.5%.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has financed its operations principally with funds generated from operations. At
December&nbsp;31, 2006, the Company had cash, cash equivalents and marketable securities of $61.5
million compared to $58.9&nbsp;million at September&nbsp;30, 2006. The Company&#146;s working capital
increased $7.2&nbsp;million to $90.5&nbsp;million at December&nbsp;31, 2006 compared to $83.3&nbsp;million at
September&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash provided by operating activities was $3.2&nbsp;million and $2.3&nbsp;million for the three
months ended December&nbsp;31, 2006 and 2005, respectively. The increase in net cash provided by
operating activities of $0.9&nbsp;million for the comparable three month periods ended December&nbsp;31,
2006 and 2005 is primarily due to an increase in net income of $1.6&nbsp;million adjusted for
non-cash expenses of $1.7&nbsp;million, primarily related to stock-based compensation and deferred
income taxes, offset by a $2.4&nbsp;million usage of working capital resulting from increased
inventory at December&nbsp;31, 2006 due to additional material purchases and production builds in
order to fulfill order demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash provided by investing activities was $1.7&nbsp;million during the three months ended
December&nbsp;31, 2006 compared to net cash used by investing activities of $4.9&nbsp;million during the
same period in the prior fiscal year. Net settlements of marketable securities were $3.2
million during the three months ended December&nbsp;31, 2006 compared to net purchases of
marketable securities of $4.6&nbsp;million during the same period one year ago. Purchases of
property, equipment, improvements and certain other intangible assets were $0.7&nbsp;million and
$0.3&nbsp;million for the three months ended December&nbsp;31, 2006 and 2005, respectively. During the
three months ended December&nbsp;31, 2006, the Company used $0.8&nbsp;million for contingent purchase
price payments related to the FS Forth acquisition (see Note 10 to Condensed Consolidated
Financial Statements).
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /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: 6pt; margin-left: 45px; text-indent: -45px"><B>ITEM 2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)</B>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company anticipates total fiscal 2007 capital expenditures to approximate $2.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company generated $0.7&nbsp;million from financing activities during the three months ended
December&nbsp;31, 2006 compared to $1.8&nbsp;million during the same period a year ago, primarily as a
result of proceeds from stock option and employee stock purchase plan transactions in both
periods, and the reflection of cash provided by the excess tax benefits related to the
exercise of stock options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s management believes that current financial resources, cash generated from
operations and the Company&#146;s potential capacity for additional debt and/or equity financing
will be sufficient to fund operations in the foreseeable future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following summarizes the Company&#146;s contractual obligations at December&nbsp;31, 2006 (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="40%">&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="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>&nbsp;</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  style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Thereafter</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&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 leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">831</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total contractual cash obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,834</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,071</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">831</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. The capital leases summarized above are for manufacturing
equipment located in Davis, California and Breisach, Germany. The table above excludes a
potential $1.2&nbsp;million installment on October&nbsp;1, 2007 of additional contingent purchase price
payments related to the FS Forth acquisition if certain future milestones are achieved (see
Note 10 to Condensed Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In July, 2006 the FASB issued Interpretation No.&nbsp;48 (&#147;FIN 48&#148;) &#147;Accounting for Uncertainty in
Income Taxes &#151; an interpretation of FASB Statement No.&nbsp;109.&#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 will be
effective for the Company beginning October&nbsp;1, 2007. The Company is in the process of
determining the effect, if any, that the adoption of FIN 48 will have on its consolidated
financial statements. However, the Company does expect to reclassify a portion of its
unrecognized tax benefits from current to non-current liabilities because 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">RISK FACTORS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Multiple risk factors exist which could have a material effect on the Company&#146;s operations,
results of operations, profitability, financial position, liquidity and capital resources.
These risk factors are more fully presented in the Company&#146;s 2006 Annual Report on Form 10-K
as filed with the SEC.
</DIV>


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

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<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>ITEM 3. 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">The Company&#146;s exposure to interest rate risk relates primarily to the Company&#146;s investment
portfolio. Investments are made in accordance with the Company&#146;s investment policy and
consist of high grade commercial paper and corporate bonds. The Company does not use
derivative financial instruments to hedge against interest rate risk as all investments are
held to maturity and the majority of the Company&#146;s investments mature in less than a year. A
change in interest rates would not have a material effect on the Company&#146;s financial
statements.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s transactions are executed in the U.S. Dollar, Euro or Japanese Yen. As a
result, the Company is 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 the Company&#146;s foreign
subsidiaries are translated into U.S. Dollars for consolidation. The Company has not
implemented a hedging strategy to reduce foreign currency risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the three months ended December&nbsp;31, 2006 and 2005, the Company had approximately $14.2
million and $14.1&nbsp;million, respectively, of net sales to foreign customers including export
sales, of which $6.5&nbsp;million and $5.0&nbsp;million, respectively, were denominated in foreign
currency, predominantly Euros. In future periods, a significant portion of sales will
continue to be made in Euros.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The average monthly exchange rate for the Euro to the U.S. Dollar increased approximately 8.3%
from 1.1902 to 1.2891 and the average monthly exchange rate for the Japanese Yen to the U.S.
Dollar remained at .0085 for the first quarter of fiscal year 2007 as compared to the same
period one year ago. A 10.0% change from the first quarter fiscal 2007 average exchange rate
for the Euro and Yen to the U.S. Dollar would have resulted in a 1.6% increase or decrease in
net sales and a 1.1% increase or decrease in stockholders&#146; equity. The above analysis does
not take into consideration any pricing adjustments the Company may need to consider in
response to changes in the exchange rate.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has some exposure to credit risk related to its 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>

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

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. CONTROLS AND PROCEDURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of the end of the period covered by this report, the Company conducted an evaluation, under
the supervision and with the participation of the principal executive officer and principal
financial officer, of the Company&#146;s disclosure controls and procedures (as defined in Rules
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 the Company&#146;s disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in reports that it files or submits under
the Exchange Act was recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms and is accumulated and
communicated to our management, including the principal executive and principal financial
officer, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
</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="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES (CONTINUED)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There was no change in the Company&#146;s internal control over financial reporting during the
Company&#146;s most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company&#146;s internal control over financial
reporting.
</DIV>

<DIV align="left">
<A name="110"></A>
</DIV>

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

<DIV align="left">
<A name="111"></A>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The disclosures set forth in Note 10 to the Condensed Consolidated Financial Statements in
Part&nbsp;I, Item&nbsp;1 of this Form 10-Q is incorporated herein by reference.
</DIV>

<DIV align="left">
<A name="112"></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 the Company&#146;s operations,
results of operations, profitability, financial position, liquidity and capital resources.
These risk factors are more fully presented in the Company&#146;s 2006 Annual Report on Form 10-K
as filed with the SEC.
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</B>
</DIV>

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

<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. DEFAULTS UPON SENIOR SECURITIES</B>
</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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B>
</DIV>

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

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 5. OTHER INFORMATION</B>
</DIV>

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

<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. EXHIBITS</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="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">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">3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of the Company, as amended (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">3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-Laws of the Company, as amended (2)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /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>PART II. OTHER INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>ITEM 6. EXHIBITS (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="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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 (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">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
10, 1998 between Digi International Inc. and Wells Fargo Bank Minnesota, National
Association (formerly known as Norwest Bank Minnesota, National Association), as
Rights Agent (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">10(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. 2000 Omnibus Stock Plan as Amended and Restated
effective as of November&nbsp;27, 2006, as approved by stockholders on January&nbsp;22, 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>
</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">Digi International Inc. Employee Stock Purchase Plan, as Amended and Restated
effective as of November&nbsp;27, 2006, as approved by stockholders on January&nbsp;22, 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>
</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>
<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(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">(1)</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.&nbsp;0-17972)</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 3(b) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2001 (File No.&nbsp;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;1 to the Company&#146;s Registration Statement on Form 8-A
dated June&nbsp;24, 1998 (File No.&nbsp;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;1 to Amendment 1 to the Company&#146;s Registration Statement
on Form 8-A dated February&nbsp;5, 1999 (File No.&nbsp;0-17972)</TD>
</TR>

</TABLE>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements 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">Date: February 7, 2007&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Subramanian Krishnan
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Subramanian Krishnan&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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


<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="left" style="font-size: 10pt; margin-top: 12pt">EXHIBIT INDEX
</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="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Document Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Form of Filing</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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 (incorporated
by reference to the corresponding exhibit
number to the Company&#146;s Form&nbsp;10-K for
the year ended September&nbsp;30, 1993<BR>
(File No.&nbsp;0-17972))
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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 (incorporated by reference to
the corresponding exhibit number to the
Company&#146;s Form&nbsp;10-K for the year ended
September&nbsp;30, 2001<BR>
(File No.&nbsp;0-17972))
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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 (incorporated by reference to Exhibit&nbsp;1
to the Company&#146;s Registration Statement on
Form&nbsp;8-A dated June&nbsp;24, 1998<BR>
(File No.&nbsp;0-17972))
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Incorporated by Reference</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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 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 (incorporated
by reference to Exhibit&nbsp;1 to Amendment No.&nbsp;1
to the Company&#146;s Registration Statement on
Form&nbsp;8-A dated February&nbsp;5, 1999<BR>
(File No.&nbsp;0-17972))
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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. 2000 Omnibus
Stock Plan as Amended and Restated
effective as of November&nbsp;27, 2006,
as approved by stockholders on
January&nbsp;22, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Employee Stock
Purchase Plan, as Amended and
Restated effective as of November&nbsp;27, 2006,
as approved by stockholders on
January&nbsp;22, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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)<BR>
Certification of Chief Executive Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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)<BR>
Certification of Chief Financial Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" 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 align="center" 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="bottom">Filed Electronically</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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<DOCUMENT>
<TYPE>EX-10.(A)
<SEQUENCE>2
<FILENAME>c11903exv10wxay.htm
<DESCRIPTION>OMNIBUS STOCK PLAN
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;10(a)
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Digi International Inc.<BR>
2000 Omnibus Stock Plan<BR>
as Amended and Restated as of<BR>
November&nbsp;27, 2006</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>Purpose</U>. The purpose of the Digi International Inc. 2000 Omnibus Stock Plan (the
&#147;Plan&#148;) is to promote the interests of the Company and its stockholders by providing key personnel
of the Company and its Affiliates and Outside Directors with an opportunity to acquire a
proprietary interest in the Company and reward them for achieving a high level of corporate
performance and thereby develop a stronger incentive to put forth maximum effort for the continued
success and growth of the Company and its Affiliates. In addition, the opportunity to acquire a
proprietary interest in the Company will aid in attracting and retaining key personnel and Outside
Directors of outstanding ability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>Definitions</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 The capitalized terms used elsewhere in the Plan have the meanings set forth below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) &#147;Affiliate&#148; means any corporation that is a &#147;parent corporation&#148; or
&#147;subsidiary corporation&#148; of the Company, as those terms are defined in Code Sections
424(e) and (f), or any successor provisions, and, for purposes other than the grant
of Incentive Stock Options, any joint venture in which the Company or any such
&#147;parent corporation&#148; or &#147;subsidiary corporation&#148; owns an equity interest.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) &#147;Agreement&#148; means a written contract (i)&nbsp;consistent with the terms of the
Plan entered into between the Company or an Affiliate and a Participant and (ii)
containing the terms and conditions of an Award in such form and not inconsistent
with the Plan as the Committee shall approve from time to time, together with all
amendments thereto, which amendments may be unilaterally made by the Company (with
the approval of the Committee) unless such amendments are deemed by the Committee to
be materially adverse to the Participant and not required as a matter of law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) &#147;Award&#148; or &#147;Awards&#148; means a grant made under the Plan in the form of
Restricted Stock, Options, Stock Appreciation Rights, Performance Units, Stock or
any other stock-based award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) &#147;Board&#148; means the Board of Directors of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) &#147;Code&#148; means the Internal Revenue Code of 1986, as amended and in effect
from time to time or any successor statute.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) &#147;Committee&#148; means two or more Non-Employee Directors designated by the
Board to administer the Plan under Plan Section&nbsp;3.1 and
constituted so as to permit grants thereby to comply with Exchange Act Rule
16b-3 and Code Section&nbsp;162(m).
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) &#147;Company&#148; means Digi International Inc., a Delaware corporation, or any
successor to all or substantially all of its businesses by merger, consolidation,
purchase of assets or otherwise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) &#147;Effective Date&#148; means the date specified in Plan Section&nbsp;12.1.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) &#147;Employee&#148; means an employee (including an officer or director who is also
an employee) of the Company or an Affiliate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) &#147;Exchange Act&#148; means the Securities Exchange Act of 1934, as amended and in
effect from time to time or any successor statute.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) &#147;Exchange Act Rule&nbsp;16b-3&#148; means Rule&nbsp;16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act, as now in force and in effect from
time to time or any successor regulation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) &#147;Fair Market Value&#148; as of any date means, unless otherwise expressly
provided in the Plan:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the closing sale price of a Share on such date, or, if no sale of
Shares shall have occurred on that date, on the next preceding day on which
a sale of Shares occurred
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 8%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) on the composite tape for NASDAQ-listed shares, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 8%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) if the Shares are not quoted on the composite tape for
NASDAQ-listed shares, on the principal United States Securities
Exchange registered under the Exchange Act on which the Shares are
listed, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) if clause (i)&nbsp;is inapplicable, the mean between the closing &#147;bid&#148;
and the closing &#147;asked&#148; quotation of a Share on that date, or, if no closing
bid or asked quotation is made on that date, on the next preceding day on
which a closing bid and asked quotation is made, on the National Association
of Securities Dealers, Inc. Automated Quotations System or any system then
in use, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) if clauses (i)&nbsp;and (ii)&nbsp;are inapplicable, what the Committee
determines in good faith to be 100% of the fair market value of a Share on
that date, using such criteria as it shall determine, in its sole
discretion, to be appropriate for valuation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of an Incentive Stock Option, if this determination of Fair Market
Value is not consistent with the then current regulations of the Secretary
of the Treasury, Fair Market Value shall be determined in accordance with those
regulations. The determination of Fair Market Value shall be subject to adjustment
as provided in Plan Section&nbsp;16.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) &#147;Fundamental Change&#148; means a dissolution or liquidation of the Company, a
sale of substantially all of the assets of the Company, a merger or consolidation of
the Company with or into any other corporation, regardless of whether the Company is
the surviving corporation, or a statutory share exchange involving capital stock of
the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) &#147;Incentive Stock Option&#148; means any Option designated as such and granted in
accordance with the requirements of Code Section&nbsp;422 or any successor provision.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) &#147;Insider&#148; as of a particular date means any person who, as of that date is
an officer of the Company as defined under Exchange Act Rule&nbsp;16a-1(f) or its
successor provision.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) &#147;Non-Employee Director&#148; means a member of the Board who is considered a
non-employee director within the meaning of Exchange Act Rule&nbsp;16b-3(b)(3) or its
successor provision and an outside director for purposes of Code Section&nbsp;162(m).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) &#147;Non-Statutory Stock Option&#148; means an Option other than an Incentive Stock
Option.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) &#147;Option&#148; means a right to purchase Stock, including both Non-Statutory
Stock Options and Incentive Stock Options.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) &#147;Outside Director&#148; means a director who is not an Employee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) &#147;Participant&#148; means a person or entity to whom an Award is or has been made
in accordance with the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) &#147;Performance Cycle&#148; means the period of time as specified in an Agreement
over which Performance Units are to be earned.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) &#147;Performance Units&#148; means an Award made pursuant to Plan Section&nbsp;11.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w) &#147;Plan&#148; means this Digi International Inc. 2000 Omnibus Stock Plan, as may
be amended and in effect from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) &#147;Restricted Stock&#148; means Stock granted under Plan Section&nbsp;7 so long as such
Stock remains subject to one or more restrictions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(y) &#147;Section&nbsp;16&#148; or &#147;Section&nbsp;16(b)&#148; means Section&nbsp;16 or Section&nbsp;16(b),
respectively, of the Exchange Act or any successor statute and the rules and
regulations promulgated thereunder as in effect and as amended from time to
time.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(z) &#147;Share&#148; means a share of Stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(aa) &#147;Stock&#148; means the common stock, par value $.01 per share, of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(bb) &#147;Stock Appreciation Right&#148; means a right, the value of which is determined
in relation to the appreciation in value of Shares pursuant to an Award granted
under Plan Section&nbsp;10.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(cc) &#147;Subsidiary&#148; means a &#147;subsidiary corporation,&#148; as that term is defined in
Code Section 424(f) or any successor provision.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(dd) &#147;Successor&#148; with respect to a Participant means the legal representative
of an incompetent Participant, and if the Participant is deceased the estate of the
Participant or the person or persons who may, by bequest or inheritance, or pursuant
to the terms of an Award, acquire the right to exercise an Option or Stock
Appreciation Right or to receive cash and/or Shares issuable in satisfaction of an
Award in the event of the Participant&#146;s death.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ee) &#147;Term&#148; means the period during which an Option or Stock Appreciation Right
may be exercised or the period during which the restrictions or terms and conditions
placed on Restricted Stock or any other Award are in effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ff) &#147;Transferee&#148; means any member of the Participant&#146;s immediate family (i.e.,
his or her children, step-children, grandchildren and spouse) or one or more trusts
for the benefit of such family members or partnerships in which such family members
are the only partners.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <U>Gender and Number</U>. Except when otherwise indicated by the context,
reference to the masculine gender shall include, when used, the feminine gender and any term
used in the singular shall also include the plural.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>Administration and Indemnification</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <U>Administration</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Committee shall administer the Plan. The Committee shall have
exclusive power to (i)&nbsp;make Awards, (ii)&nbsp;determine when and to whom Awards will be
granted, the form of each Award, the amount of each Award, and any other terms or
conditions of each Award consistent with the Plan, and (iii)&nbsp;determine whether, to
what extent and under what circumstances, Awards may be settled, paid or exercised
in cash, Shares or other Awards, or other property or canceled, forfeited or
suspended. Each Award shall be subject to an Agreement authorized by the Committee.
A majority of the members of the Committee shall
constitute a quorum for any meeting of the Committee, and acts of a majority of
the members present at any meeting at which a quorum is present or the acts
unanimously approved in writing by all members of the Committee shall be the acts of
the Committee. Notwithstanding the foregoing, the Board shall have the sole and
exclusive power to administer the Plan with respect to Awards granted to Outside
Directors.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Solely for purposes of determining and administering Awards to Participants
who are not Insiders, the Committee may delegate all or any portion of its authority
under the Plan to one or more persons who are not Non-Employee Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) To the extent within its discretion and subject to Plan Sections&nbsp;15 and 16,
other than price, the Committee may amend the terms and conditions of any
outstanding Award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) It is the intent that the Plan and all Awards granted pursuant to it shall
be administered by the Committee so as to permit the Plan and Awards to comply with
Exchange Act Rule&nbsp;16b-3, except in such instances as the Committee, in its
discretion, may so provide. If any provision of the Plan or of any Award would
otherwise frustrate or conflict with the intent expressed in this Section&nbsp;3.1(d),
that provision to the extent possible shall be interpreted and deemed amended in the
manner determined by the Committee so as to avoid the conflict. To the extent of
any remaining irreconcilable conflict with this intent, the provision shall be
deemed void as applicable to Insiders to the extent permitted by law and in the
manner deemed advisable by the Committee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The Committee&#146;s interpretation of the Plan and of any Award or Agreement
made under the Plan and all related decisions or resolutions of the Board or
Committee shall be final and binding on all parties with an interest therein.
Consistent with its terms, the Committee shall have the power to establish, amend or
waive regulations to administer the Plan. In carrying out any of its
responsibilities, the Committee shall have discretionary authority to construe the
terms of the Plan and any Award or Agreement made under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <U>Indemnification</U>. Each person who is or shall have been a member of the
Committee, or of the Board, and any other person to whom the Committee delegates authority
under the Plan, shall be indemnified and held harmless by the Company, to the extent
permitted by law, against and from any loss, cost, liability or expense that may be imposed
upon or reasonably incurred by such person in connection with or resulting from any claim,
action, suit or proceeding to which such person may be a party or in which such person may
be involved by reason of any action taken or failure to act, made in good faith, under the
Plan and against and from any and all amounts paid by such person in settlement thereof,
with the Company&#146;s approval, or paid by such person in satisfaction of any judgment in any
such action, suit or proceeding against such person, provided such person shall give the
Company an opportunity, at the Company&#146;s expense, to handle and defend the same before such
person undertakes to handle and defend it on such person&#146;s
own behalf. The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such person or persons may be entitled under the
Company&#146;s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>Shares Available Under the Plan</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The number of Shares available for distribution under the Plan shall not
exceed 3,250,000 (subject to adjustment pursuant to Plan Section&nbsp;16).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any Shares subject to the terms and conditions of an Award under the Plan
that are not used because the terms and conditions of the Award are not met may
again be used for an Award under the Plan; provided however, that Shares with
respect to which a Stock Appreciation Right has been exercised whether paid in cash
and/or in Shares may not again be awarded under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Any unexercised or undistributed portion of any terminated, expired,
exchanged, or forfeited Award, or any Award settled in cash in lieu of Shares
(except as provided in Plan Section&nbsp;4(b)) shall be available for further Awards.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) For the purposes of computing the total number of Shares granted under the
Plan, the following rules shall apply to Awards payable in Shares where appropriate:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) each Option shall be deemed to be the equivalent of the maximum
number of Shares that may be issued upon exercise of the particular Option;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) an Award (other than an Option) payable in some other security
shall be deemed to be equal to the number of Shares to which it relates;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) where the number of Shares available under the Award is variable
on the date it is granted, the number of Shares shall be deemed to be the
maximum number of Shares that could be received under that particular Award;
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) where two or more types of Awards (all of which are payable in
Shares) are granted to a Participant in tandem with each other, such that
the exercise of one type of Award with respect to a number of Shares cancels
at least an equal number of Shares of the other, each such joint Award shall
be deemed to be the equivalent of the maximum number of Shares available
under the largest single Award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional rules for determining the number of Shares granted under the Plan
may be made by the Committee as it deems necessary or desirable.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) No fractional Shares may be issued under the Plan; however, cash shall be
paid in lieu of any fractional Share in settlement of an Award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The maximum number of Shares that may be awarded to a Participant in any
calendar year in the form of Options is 250,000, the maximum number of Shares that
may be awarded to a Participant in any calendar year in the form of Restricted Stock
is 100,000, and the maximum number of Shares that may be awarded to a Participant in
any calendar year in the form of Stock Appreciation Rights is 100,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>Eligibility</U>. Participation in the Plan shall be limited to Employees and to
individuals or entities who are not Employees but who provide services to the Company or an
Affiliate, including services provided in the capacity of a consultant, advisor or director. The
granting of Awards is solely at the discretion of the Committee, except that Incentive Stock
Options may only be granted to Employees. References herein to &#147;employed,&#148; &#147;employment&#148; or similar
terms (except &#147;Employee&#148;) shall include the providing of services in any capacity or as a director.
Neither the transfer of employment of a Participant between any of the Company or its Affiliates,
nor a leave of absence granted to such Participant and approved by the Committee, shall be deemed a
termination of employment for purposes of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>General Terms of Awards</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <U>Amount of Award</U>. Each Agreement shall set forth the number of Shares of
Restricted Stock, Stock or Performance Units subject to the Agreement, or the number of
Shares to which the Option subject to the Agreement applies or with respect to which payment
upon the exercise of the Stock Appreciation Right subject to the Agreement is to be
determined, as the case may be, together with such other terms and conditions applicable to
the Award as determined by the Committee acting in its sole discretion.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <U>Term</U>. Each Agreement, other than those relating solely to Awards of Shares
without restrictions, shall set forth the Term of the Option, Stock Appreciation Right,
Restricted Stock or other Award or the Performance Cycle for the Performance Units, as the
case may be. Acceleration of the expiration of the applicable Term is permitted, upon such
terms and conditions as shall be set forth in the Agreement, which may, but need not,
include, without limitation, acceleration in the event of the Participant&#146;s death or
retirement. Acceleration of the Performance Cycle of Performance Units shall be subject to
Plan Section&nbsp;11.2.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 <U>Transferability</U>. Except as provided in this Section, during the lifetime
of a Participant to whom an Award is granted, only that Participant (or that Participant&#146;s
legal representative) may exercise an Option or Stock Appreciation Right, or receive payment
with respect to Performance Units or any other Award. No Award of Restricted Stock (before
the expiration of the restrictions), Options, Stock Appreciation Rights or Performance Units
or other Award may be sold, assigned, transferred, exchanged or otherwise encumbered other
than to a Successor in the event of a Participant&#146;s death or pursuant to a qualified
domestic relations order as defined in the Code or Title 1 of the Employee Retirement Income
Security Act of 1974, as amended (&#147;ERISA&#148;), or the rules
thereunder; any attempted transfer in violation of this Section&nbsp;6.3 shall be of no effect.
Notwithstanding the immediately preceding sentence, the Committee, in an Agreement or
otherwise at its discretion, may provide that the Award (other than Incentive Stock Options)
may be transferable to a Transferee if the Participant does not receive any consideration
for the transfer. Any Award held by a Transferee shall continue to be subject to the same
terms and conditions that were applicable to that Award immediately before the transfer
thereof to the Transferee. For purposes of any provision of the Plan relating to notice to
a Participant or to acceleration or termination of an Award upon the death, disability or
termination of employment of a Participant the references to &#147;Participant&#148; shall mean the
original grantee of an Award and not any Transferee.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4 <U>Termination of Employment</U>. Except as otherwise determined by the Committee
or provided by the Committee in an Agreement, in case of a Participant&#146;s termination of
employment, the following provisions shall apply:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Options and Stock Appreciation Rights</U>.
</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="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If a Participant&#146;s employment or other
relationship with the Company and its Affiliates terminates because of
the Participant&#146;s death, then any Option or Stock Appreciation Right
that has not expired or been terminated shall become exercisable in
full if the Participant&#146;s employment or other relationship with the
Company and its Affiliates has been continuous between the date the
Option or Stock Appreciation Right was granted and a date not more than
three months prior to such death, and may be exercised by the
Participant&#146;s Successor at any time, or from time to time, within one
year after the date of the Participant&#146;s death.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If a Participant&#146;s employment or other
relationship with the Company and its Affiliates terminates because the
Participant is disabled (within the meaning of Section&nbsp;22(e)(3) of the
Code), then any Option or Stock Appreciation Right that has not expired
or been terminated shall become exercisable in full if the
Participant&#146;s employment or other relationship with the Company and its
Affiliates has been continuous between the date the Option or Stock
Appreciation Right was granted and the date of such disability, and the
Participant or the Participant&#146;s Successor may exercise such Option or
Stock Appreciation Right at any time, or from time to time, within one
year after the date of the Participant&#146;s disability.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If a Participant&#146;s employment terminates for
any reason other than death or disability, then any Option or Stock
Appreciation Right that has not expired or been terminated shall remain
exercisable for three months after termination of the Participant&#146;s
employment, but, unless otherwise provided in the Agreement, only to
the extent that such Option or Stock Appreciation Right was exercisable
immediately prior to such Participant&#146;s termination of employment;
provided,
however, that if the Participant is an Outside Director, the Option
or Stock Appreciation Right shall remain exercisable until the
expiration of the Term after such Outside Director ceases to be a
director of the Company but, unless otherwise provided in the
Agreement, only to the extent that such Option or Stock Appreciation
Right was exercisable immediately prior to such Outside Director
ceasing to be a director.</TD>
</TR>

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


<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="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Notwithstanding the foregoing Plan Sections
6.4(a)(i), (ii)&nbsp;and (iii), in no event shall an Option or a Stock
Appreciation Right be exercisable after the expiration of the Term of
such Award. Any Option or Stock Appreciation Right that is not
exercised within the periods set forth in Plan Sections&nbsp;6.4 (i), (ii)
and (iii), except as otherwise provided by the Committee in the
Agreement, shall terminate as of the end of the periods described in
such Sections.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Performance Units</U>. If a Participant&#146;s employment or other
relationship with the Company and its Affiliates terminates during a Performance
Cycle because of death or disability, or under other circumstances provided by the
Committee in its discretion in the Agreement or otherwise, the Participant, unless
the Committee shall otherwise provide in the Agreement, shall be entitled to a
payment with respect to Performance Units at the end of the Performance Cycle based
upon the extent to which achievement of performance targets was satisfied at the end
of such period (as determined at the end of the Performance Cycle) and prorated for
the portion of the Performance Cycle during which the Participant was employed by
the Company or its Affiliates. Except as provided in this Section&nbsp;6.4(b) or in the
Agreement, if a Participant&#146;s employment or other relationship with the Company and
its Affiliates terminates during a Performance Cycle, then such Participant shall
not be entitled to any payment with respect to that Performance Cycle.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Restricted Stock Awards</U>. Unless otherwise provided in the
Agreement, in case of a Participant&#146;s death or disability, the Participant shall be
entitled to receive a number of Shares of Restricted Stock under outstanding Awards
that has been prorated for the portion of the Term of the Awards during which the
Participant was employed by the Company and its Affiliates, and, with respect to
such Shares, all restrictions shall lapse. Any Shares of Restricted Stock as to
which restrictions do not lapse under the preceding sentence shall terminate at the
date of the Participant&#146;s termination of employment and such Shares of Restricted
Stock shall be forfeited to the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.5 <U>Rights as Stockholder</U>. Each Agreement shall provide that a Participant
shall have no rights as a stockholder with respect to any securities covered by an Award
unless and until the date the Participant becomes the holder of record of the Stock, if any,
to which the Award relates.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;<U>Restricted Stock Awards</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) An Award of Restricted Stock under the Plan shall consist of Shares subject
to restrictions on transfer and conditions of forfeiture, which restrictions and
conditions shall be included in the applicable Agreement. The Committee may provide
for the lapse or waiver of any such restriction or condition based on such factors
or criteria as the Committee, in its sole discretion, may determine.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Except as otherwise provided in the applicable Agreement, each Stock
certificate issued with respect to an Award of Restricted Stock shall either be
deposited with the Company or its designee, together with an assignment separate
from the certificate, in blank, signed by the Participant, or bear such legends with
respect to the restricted nature of the Restricted Stock evidenced thereby as shall
be provided for in the applicable Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The Agreement shall describe the terms and conditions by which the
restrictions and conditions of forfeiture upon awarded Restricted Stock shall lapse.
Upon the lapse of the restrictions and conditions, Shares free of restrictive
legends, if any, relating to such restrictions shall be issued to the Participant or
a Successor or Transferee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) A Participant or a Transferee with a Restricted Stock Award shall have all
the other rights of a stockholder including, but not limited to, the right to
receive dividends and the right to vote the Shares of Restricted Stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) No more than 1,000,000 of the total number of Shares available for Awards
under the Plan shall be issued during the term of the Plan as Restricted Stock.
This limitation shall be calculated pursuant to the applicable provisions of Plan
Sections&nbsp;4 and 16.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;<U>Other Awards</U>. The Committee may from time to time grant Stock and other Awards
under the Plan including, without limitation, those Awards pursuant to which Shares are or may in
the future be acquired, Awards denominated in Stock units, securities convertible into Stock and
phantom securities. The Committee, in its sole discretion, shall determine the terms and
conditions of such Awards provided that such Awards shall not be inconsistent with the terms and
purposes of the Plan. The Committee may, at its sole discretion, direct the Company to issue
Shares subject to restrictive legends and/or stop transfer instructions that are consistent with
the terms and conditions of the Award to which the Shares relate. No more than 50,000 of the total
number of Shares available for Awards under the Plan shall be issued during the term of the Plan in
the form of Stock without restrictions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;<U>Stock Options</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 <U>Terms of All Options</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) An Option shall be granted pursuant to an Agreement as either an Incentive
Stock Option or a Non-Statutory Stock Option. The purchase price of
each Share subject to an Option shall be determined by the Committee and set
forth in the Agreement, but shall not be less than the Fair Market Value of a Share
as of the date the Option is granted (except as provided in Plan Sections&nbsp;9.2 and
19).
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The purchase price of the Shares with respect to which an Option is
exercised shall be payable in full at the time of exercise, provided that to the
extent permitted by law, the Agreement may permit some or all Participants to
simultaneously exercise Options and sell the Shares thereby acquired pursuant to a
brokerage or similar relationship and use the proceeds from the sale as payment of
the purchase price of the Shares. The purchase price may be payable in cash, by
delivery or tender of Shares having a Fair Market Value as of the date the Option is
exercised equal to the purchase price of the Shares being purchased pursuant to the
Option, or a combination thereof, as determined by the Committee, but no fractional
Shares will be issued or accepted. Provided, however, that a Participant exercising
a stock option shall not be permitted to pay any portion of the purchase price with
Shares if, in the opinion of the Committee, payment in such manner could have
adverse financial accounting consequences for the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each Option shall be exercisable in whole or in part on the terms provided
in the Agreement. In no event shall any Option be exercisable at any time after the
expiration of its Term. When an Option is no longer exercisable, it shall be deemed
to have lapsed or terminated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 <U>Incentive Stock Options</U>. In addition to the other terms and conditions
applicable to all Options:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the purchase price of each Share subject to an Incentive Stock Option shall
not be less than 100% of the Fair Market Value of a Share as of the date the
Incentive Stock Option is granted if this limitation is necessary to qualify the
Option as an Incentive Stock Option (except as provided in Plan Section&nbsp;20);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the aggregate Fair Market Value (determined as of the date the Option is
granted) of the Shares with respect to which Incentive Stock Options held by an
individual first become exercisable in any calendar year (under the Plan and all
other incentive stock option plans of the Company and its Affiliates) shall not
exceed $100,000 (or such other limit as may be required by the Code) if this
limitation is necessary to qualify the Option as an Incentive Stock Option and to
the extent an Option or Options granted to a Participant exceed this limit the
Option or Options shall be treated as a Non-Statutory Stock Option;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) an Incentive Stock Option shall not be exercisable more than 10&nbsp;years
after the date of grant (or such other limit as may be required by the Code) if this
limitation is necessary to qualify the Option as an Incentive Stock Option;
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) the Agreement covering an Incentive Stock Option shall contain such other
terms and provisions that the Committee determines necessary to qualify this Option
as an Incentive Stock Option; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) notwithstanding any other provision of the Plan to the contrary, no
Participant may receive an Incentive Stock Option under the Plan if, at the time the
Award is granted, the Participant owns (after application of the rules contained in
Code Section&nbsp;424(d), or its successor provision), Shares possessing more than 10% of
the total combined voting power of all classes of stock of the Company or its
Subsidiaries, unless (i)&nbsp;the exercise price for that Incentive Stock Option is at
least 110% of the Fair Market Value of the Shares subject to that Incentive Stock
Option on the date of grant and (ii)&nbsp;that Option is not exercisable after the date
five years from the date that Incentive Stock Option is granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;<U>Stock Appreciation Rights</U>. An Award of a Stock Appreciation Right shall entitle
the Participant (or a Successor or Transferee), subject to terms and conditions determined by the
Committee, to receive upon exercise of the Stock Appreciation Right all or a portion of the excess
of (i)&nbsp;the Fair Market Value of a specified number of Shares as of the date of exercise of the
Stock Appreciation Right over (ii)&nbsp;a specified price that shall not be less than 100% of the Fair
Market Value of such Shares as of the date of grant of the Stock Appreciation Right. A Stock
Appreciation Right may be granted in connection with part or all of, in addition to, or completely
independent of an Option or any other Award under the Plan. If issued in connection with a
previously or contemporaneously granted Option, the Committee may impose a condition that exercise
of a Stock Appreciation Right cancels a pro rata portion of the Option with which it is connected
and vice versa. Each Stock Appreciation Right may be exercisable in whole or in part on the terms
provided in the Agreement. No Stock Appreciation Right shall be exercisable at any time after the
expiration of its Term. When a Stock Appreciation Right is no longer exercisable, it shall be
deemed to have lapsed or terminated. Upon exercise of a Stock Appreciation Right, payment to the
Participant or a Successor or Transferee shall be made at such time or times as shall be provided
in the Agreement in the form of cash, Shares or a combination of cash and Shares as determined by
the Committee. The Agreement may provide for a limitation upon the amount or percentage of the
total appreciation on which payment (whether in cash and/or Shares) may be made in the event of the
exercise of a Stock Appreciation Right.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;<U>Performance Units</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1 <U>Initial Award</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) An Award of Performance Units under the Plan shall entitle the Participant
or a Successor or Transferee to future payments of cash, Shares or a combination of
cash and Shares, as determined by the Committee, based upon the achievement of
pre-established performance targets. These performance targets may, but need not,
include, without limitation, targets relating to one or more of the Company&#146;s or a
group&#146;s, unit&#146;s, Affiliate&#146;s or an individual&#146;s performance. The Agreement may
establish that a portion of a Participant&#146;s Award will be paid for performance that
exceeds the minimum target but falls below the maximum
target applicable to the Award. The Agreement shall also provide for the
timing of the payment.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Following the conclusion or acceleration of each Performance Cycle, the
Committee shall determine the extent to which (i)&nbsp;performance targets have been
attained, (ii)&nbsp;any other terms and conditions with respect to an Award relating to
the Performance Cycle have been satisfied and (iii)&nbsp;payment is due with respect to
an Award of Performance Units.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2 <U>Acceleration and Adjustment</U>. The Agreement may permit an acceleration of
the Performance Cycle and an adjustment of performance targets and payments with respect to
some or all of the Performance Units awarded to a Participant, upon the occurrence of
certain events, which may, but need not include, without limitation, a Fundamental Change, a
recapitalization, a change in the accounting practices of the Company, a change in the
Participant&#146;s title or employment responsibilities, the Participant&#146;s death or retirement
or, with respect to payments in Shares with respect to Performance Units, a
reclassification, stock dividend, stock split or stock combination as provided in Plan
Section&nbsp;16. The Agreement also may provide for a limitation on the value of an Award of
Performance Units that a Participant may receive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;<U>Effective Date and Duration of the Plan</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1 <U>Effective Date</U>. The Plan shall become effective as of November&nbsp;6, 2000,
provided that the Plan is approved by the requisite vote of stockholders at the January&nbsp;2001
Annual Meeting of Stockholders or any adjournment thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2 <U>Duration of the Plan</U>. The Plan shall remain in effect until all Stock
subject to it shall be distributed, all Awards have expired or lapsed, the Plan is
terminated pursuant to Plan Section&nbsp;15, or November&nbsp;27, 2016 (the &#147;Termination Date&#148;);
provided, however, that Awards made before the Termination Date may be exercised, vested or
otherwise effectuated beyond the Termination Date unless limited in the Agreement or
otherwise. No Award of an Incentive Stock Option shall be made more than 10&nbsp;years after the
Effective Date (or such other limit as may be required by the Code) if this limitation is
necessary to qualify the Option as an Incentive Stock Option. The date and time of approval
by the Committee of the granting of an Award shall be considered the date and time at which
the Award is made or granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;<U>Plan Does Not Affect Employment Status</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Status as an eligible Employee shall not be construed as a commitment that
any Award will be made under the Plan to that eligible Employee or to eligible
Employees generally.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Nothing in the Plan or in any Agreement or related documents shall confer
upon any Employee or Participant any right to continue in the employment of the
Company or any Affiliate or constitute any contract of employment or affect any
right that the Company or any Affiliate may have to
change such person&#146;s compensation, other benefits, job responsibilities, or
title, or to terminate the employment of such person with or without cause.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;<U>Tax Withholding</U>. The Company shall have the right to withhold from any cash
payment under the Plan to a Participant or other person (including a Successor or a Transferee) an
amount sufficient to cover any required withholding taxes. The Company shall have the right to
require a Participant or other person receiving Shares under the Plan to pay the Company a cash
amount sufficient to cover any required withholding taxes before actual receipt of those Shares.
In lieu of all or any part of a cash payment from a person receiving Shares under the Plan, the
Committee may permit the individual to cover all or any part of the required withholdings through a
reduction of the number of Shares delivered or delivery or tender return to the Company of Shares
held by the Participant or other person, in each case valued in the same manner as used in
computing the withholding taxes under the applicable laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.&nbsp;<U>Amendment, Modification and Termination of the Plan</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Board may at any time and from time to time terminate, suspend or modify the
Plan. Except as limited in (b)&nbsp;below, the Committee may at any time alter or amend any or
all Agreements under the Plan to the extent permitted by law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) No termination, suspension, or modification of the Plan will materially and
adversely affect any right acquired by any Participant or Successor or Transferee under an
Award granted before the date of termination, suspension, or modification, unless otherwise
agreed to by the Participant in the Agreement or otherwise, or required as a matter of law;
but it will be conclusively presumed that any adjustment for changes in capitalization
provided for in Plan Sections&nbsp;11.2 or 16 does not adversely affect these rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.&nbsp;<U>Adjustment for Changes in Capitalization</U>. In the event of any equity
restructuring (within the meaning of Financial Accounting Standards No.&nbsp;123 (revised 2004)) that
causes the per Share value of Shares to change, such as a stock dividend, stock split, spin off,
rights offering, or recapitalization through a large, nonrecurring cash dividend, the Committee
shall cause there to be made an equitable adjustment to (i)&nbsp;the number and kind of Shares that may
be issued under the Plan, (ii)&nbsp;the limitations on the number of Shares that may be issued to an
individual Participant as an Option or a Stock Appreciation Right in any calendar year or that may
be issued in the form of Restricted Stock or Shares without restrictions and (iii)&nbsp;the number and
kind of Shares or, subject to Plan Section&nbsp;11.2, Performance Units, subject to and the exercise
price (if applicable) of any then outstanding Awards of Options, Stock Appreciation Rights,
Restricted Stock, Performance Units or any other Awards related to shares of Stock (to the extent
such other Awards would not otherwise automatically adjust in the equity restructuring); provided,
in each case, that with respect to Incentive Stock Options, no such adjustment shall be authorized
to the extent that such adjustment would cause such options to violate Section 422(b) of the Code
or any successor provision; provided further, with respect to all Awards, no such adjustment shall
be authorized to the extent that such adjustment would cause the Awards to be subject to adverse
tax consequences under Section&nbsp;409A of the Code. In the event of any other change in corporate
capitalization, such as a merger, consolidation, any reorganization (whether or not such
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">reorganization comes within the definition of such term in Section&nbsp;368 of the Code),
including a Fundamental Change (subject to Plan Section&nbsp;17), or any partial or complete
liquidation of the Company, such equitable adjustments described in the foregoing sentence may be
made as determined to be appropriate and equitable by the Committee to prevent dilution or
enlargement of rights. In either case, any such adjustment shall be conclusive and binding for
all purposes of the Plan. Unless otherwise determined by the Committee, the number of Shares
subject to an Award shall always be a whole number. In no event shall an outstanding Option or
Stock Appreciation Right be amended for the sole purpose of reducing the exercise price or grant
price thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.&nbsp;<U>Fundamental Change</U>. In the event of a proposed Fundamental Change, the Committee
may, but shall not be obligated to:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) if the Fundamental Change is a merger or consolidation or statutory share exchange,
make appropriate provision for the protection of the outstanding Options and Stock
Appreciation Rights by the substitution of options, stock appreciation rights and
appropriate voting common stock of the corporation surviving any merger or consolidation or,
if appropriate, the parent corporation of the Company or such surviving corporation; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) at least ten days before the occurrence of the Fundamental Change, declare, and
provide written notice to each holder of an Option or Stock Appreciation Right of the
declaration, that each outstanding Option and Stock Appreciation Right, whether or not then
exercisable, shall be canceled at the time of, or immediately before the occurrence of the
Fundamental Change in exchange for payment to each holder of an Option or Stock Appreciation
Right, within ten days after the Fundamental Change, of cash equal to (i)&nbsp;for each Share
covered by the canceled Option, the amount, if any, by which the Fair Market Value (as
defined in this Section) per Share exceeds the exercise price per Share covered by such
Option or (ii)&nbsp;for each Stock Appreciation Right, the price determined pursuant to Section
10, except that Fair Market Value of the Shares as of the date of exercise of the Stock
Appreciation Right, as used in clause (i)&nbsp;of Plan Section&nbsp;10, shall be deemed to mean Fair
Market Value for each Share with respect to which the Stock Appreciation Right is calculated
determined in the manner hereinafter referred to in this Section. At the time of the
declaration provided for in the immediately preceding sentence, each Stock Appreciation
Right and each Option shall immediately become exercisable in full and each person holding
an Option or a Stock Appreciation Right shall have the right, during the period preceding
the time of cancellation of the Option or Stock Appreciation Right, to exercise the Option
as to all or any part of the Shares covered thereby or the Stock Appreciation Right in whole
or in part, as the case may be. In the event of a declaration pursuant to Plan Section
17(b), each outstanding Option and Stock Appreciation Right granted pursuant to the Plan
that shall not have been exercised before the Fundamental Change shall be canceled at the
time of, or immediately before, the Fundamental Change, as provided in the declaration.
Notwithstanding the foregoing, no person holding an Option or a Stock Appreciation Right
shall be entitled to the payment provided for in this Section 17(b) if such Option or Stock
Appreciation Right shall have terminated, expired or been cancelled. For purposes of this
Section only, &#147;Fair Market Value&#148; per Share means the cash plus the fair market
value, as determined in good faith by the Committee, of the non-cash consideration to
be received per Share by the stockholders of the Company upon the occurrence of the
Fundamental Change.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.&nbsp;<U>Prohibition on Repricing</U>. Without the approval of the Company&#146;s stockholders, the
Committee will not reprice, adjust or amend the exercise price of any Option or the grant price of
any Stock Appreciation Right previously awarded, whether through amendment, cancellation and
replacement grant or any other means, except pursuant to Section&nbsp;16 of the Plan in connection with
an equity restructuring, or pursuant to Section&nbsp;17 of the Plan in connection with a Fundamental
Change, in order to prevent dilution or enlargement of the benefits, or potential benefits intended
to be provided under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.&nbsp;<U>Forfeitures</U>. An Agreement may provide that if a Participant has received or been
entitled to payment of cash, delivery of Shares, or a combination thereof pursuant to an Award
within six months before the Participant&#146;s termination of employment with the Company and its
Affiliates, the Committee, in its sole discretion, may require the Participant to return or forfeit
the cash and/or Shares received with respect to the Award (or its economic value as of (i)&nbsp;the date
of the exercise of Options or Stock Appreciation Rights, (ii)&nbsp;the date of, and immediately
following, the lapse of restrictions on Restricted Stock or the receipt of Shares without
restrictions, or (iii)&nbsp;the date on which the right of the Participant to payment with respect to
Performance Units vests, as the case may be) in the event of certain occurrences specified in the
Agreement. The Committee&#146;s right to require forfeiture must be exercised within 90&nbsp;days after
discovery of such an occurrence but in no event later than 15&nbsp;months after the Participant&#146;s
termination of employment with the Company and its Affiliates. The occurrences may, but need not,
include competition with the Company or any Affiliate, unauthorized disclosure of material
proprietary information of the Company or any Affiliate, a violation of applicable business ethics
policies of the Company or Affiliate or any other occurrence specified in the Agreement within the
period or periods of time specified in the Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.&nbsp;<U>Corporate Mergers, Acquisitions, Etc</U>. The Committee may also grant Options, Stock
Appreciation Rights, Restricted Stock or other Awards under the Plan in substitution for, or in
connection with the assumption of, existing options, stock appreciation rights, restricted stock or
other award granted, awarded or issued by another corporation and assumed or otherwise agreed to be
provided for by the Company pursuant to or by reason of a transaction involving a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or liquidation to which
the Company or a Subsidiary is a party. The terms and conditions of the substitute Awards may vary
from the terms and conditions set forth in the Plan to the extent as the Board at the time of the
grant may deem appropriate to conform, in whole or in part, to the provisions of the awards in
substitution for which they are granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.&nbsp;<U>Unfunded Plan</U>. The Plan shall be unfunded and the Company shall not be required
to segregate any assets that may at any time be represented by Awards under the Plan. Neither the
Company, its Affiliates, the Committee, nor the Board of Directors shall be deemed to be a trustee
of any amounts to be paid under the Plan nor shall anything contained in the Plan or any action
taken pursuant to its provisions create or be construed to create a fiduciary relationship between
the Company and/or its Affiliates, and a Participant or Successor or
Transferee. To the extent any person acquires a right to receive an Award under the Plan,
this right shall be no greater than the right of an unsecured general creditor of the Company.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22.&nbsp;<U>Limits of Liability</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Any liability of the Company to any Participant with respect to an Award shall be
based solely upon contractual obligations created by the Plan and the Award Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Except as may be required by law, neither the Company nor any member of the Board
of Directors or of the Committee, nor any other person participating in any determination of
any question under the Plan, or in the interpretation, administration or application of the
Plan, shall have any liability to any party for any action taken, or not taken, in good
faith under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.&nbsp;<U>Compliance with Applicable Legal Requirements</U>. No certificate for Shares
distributable pursuant to the Plan shall be issued and delivered unless the issuance of the
certificate complies with all applicable legal requirements including, without limitation,
compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as
amended and in effect from time to time or any successor statute, the Exchange Act and the
requirements of the exchanges on which the Company&#146;s Shares may, at the time, be listed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24.&nbsp;<U>Deferrals and Settlements</U>. The Committee may require or permit Participants to
elect to defer the issuance of Shares or the settlement of Awards in cash under such rules and
procedures as it may establish under the Plan. It may also provide that deferred settlements
include the payment or crediting of interest on the deferral amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25.&nbsp;<U>Other Benefit and Compensation Programs</U>. Payments and other benefits received by
a Participant under an Award made pursuant to the Plan shall not be deemed a part of a
Participant&#146;s regular, recurring compensation for purposes of the termination, indemnity or
severance pay laws of any country and shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan, contract or similar arrangement
provided by the Company or an Affiliate unless expressly so provided by such other plan, contract
or arrangement, or unless the Committee expressly determines that an Award or portion of an Award
should be included to accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of competitive cash compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26.&nbsp;<U>Beneficiary Upon Participant&#146;s Death</U>. To the extent that the transfer of a
Participant&#146;s Award at his or her death is permitted under an Agreement, a Participant&#146;s Award
shall be transferable at death to the estate or to the person who acquires the right to succeed to
the Award by bequest or inheritance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27.&nbsp;<U>Requirements of Law</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) To the extent that federal laws do not otherwise control, the Plan and all
determinations made and actions taken pursuant to the Plan shall be governed by the laws of
the State of Minnesota without regard to its conflicts-of-law principles and shall be
construed accordingly.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If any provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not effect the remaining parts of the Plan, and the Plan
shall be construed and enforced as if the illegal or invalid provision had not been
included.
</DIV>


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<DOCUMENT>
<TYPE>EX-10.(B)
<SEQUENCE>3
<FILENAME>c11903exv10wxby.htm
<DESCRIPTION>EMPLOYEE STOCK PURCHASE PLAN
<TEXT>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;10(b)
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DIGI INTERNATIONAL INC.<BR>
EMPLOYEE STOCK PURCHASE PLAN<BR>
AS AMENDED AND RESTATED AS OF NOVEMBER 27, 2006</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. PURPOSE AND SCOPE OF PLAN. The purpose of this Digi International Inc. Employee Stock Purchase
Plan (the &#147;Plan&#148;) is to provide the employees of Digi International Inc. (the &#147;Company&#148;) with an
opportunity to acquire a proprietary interest in the Company through the purchase of its Common
Stock and, thus, to develop a stronger incentive to work for the continued success of the Company.
The Plan is intended to be an &#147;employee stock purchase plan&#148; within the meaning of Section 423(b)
of the Internal Revenue Code of 1986, as amended, and shall be interpreted and administered in a
manner consistent with such intent.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1. The terms defined in this section are used (and capitalized) elsewhere in this Plan:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) &#147;Affiliate&#148; means any corporation that is a &#147;parent corporation&#148; or &#147;subsidiary
corporation&#148; of the Company, as defined in Sections 424(e) and 424(f) of the Code or any
successor provision, and whose participation in the Plan has been approved by the Board of
Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) &#147;Board of Directors&#148; means the Board of Directors of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) &#147;Code&#148; means the Internal Revenue Code of 1986, as amended from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) &#147;Committee&#148; means three or more Disinterested Persons designated by the Board of
Directors to administer the Plan under Section&nbsp;13.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) &#147;Common Stock&#148; means the common stock, par value $.01 per share (as such par value
may be adjusted from time to time), of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) &#147;Company&#148; means Digi International Inc.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) &#147;Compensation&#148; means the gross cash compensation (including wage, salary,
commission, bonus, and overtime earnings) paid by the Company or any Affiliate to a
Participant in accordance with the terms of employment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) &#147;Disinterested Persons&#148; means a member of the Board of Directors who is considered
a disinterested person within the meaning of Exchange Act Rule&nbsp;16b-3 or any successor
definition.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) &#147;Eligible Employee&#148; means any employee of the Company or an Affiliate who has been
employed for at least 90&nbsp;days and whose customary employment is at least 20 hours per week;
provided, however, that &#147;Eligible Employee&#148; shall not include any person who would be deemed
for purposes of Section&nbsp;423(b)(3) of the Code, to own stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) &#147;Exchange Act&#148; means the Securities Exchange Act of 1934, as amended from time to
time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) &#147;Fair Market Value&#148; of a share of Common Stock as of any date means, if the
Company&#146;s Common Stock is listed on a national securities exchange or traded in the national
market system, the mean between the high and low sale prices for such Common Stock on such
exchange or market on said date, or, if no sale has been made on such exchange or market on
said date, on the last preceding day on which any sale shall have been made. If such
determination of Fair Market Value is not consistent with the then current regulations of
the Secretary of the Treasury applicable to plans intended to qualify as an &#147;employee stock
purchase plan&#148; within the meaning of Section 423(b) of the Code, however, Fair Market Value
shall be determined in accordance with such regulations. The determination of Fair Market
Value shall be subject to adjustment as provided in Section&nbsp;14.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) &#147;Participant&#148; means an Eligible Employee who has elected to participate in the Plan
in the manner set forth in Section&nbsp;4.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) &#147;Plan&#148; means this Digi International Inc. Employee Stock Purchase Plan, as amended
from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) &#147;Purchase Period&#148; means each quarter of the Company&#146;s fiscal year. The first
Purchase Period will be the quarter that starts April&nbsp;1, 1996 and ends June&nbsp;30, 1996.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) &#147;Recordkeeping Account&#148; means the account maintained in the books and records of
the Company recording the amount withheld from each Participant through payroll deductions
made under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) &#147;Share&#148; means a share of Common Stock.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. SCOPE OF THE PLAN. Shares of Common Stock may be sold by the Company to Eligible Employees
commencing April&nbsp;1, 1996, as hereinafter provided, but not more than 1,750,000 shares of Common
Stock (subject to adjustment as provided in Section&nbsp;14) shall be sold to Eligible Employees
pursuant to this Plan. All sales of Common Stock pursuant to this Plan shall be subject to the same
terms, conditions, rights and privileges. The shares of Common Stock delivered by the Company
pursuant to this Plan may be acquired shares having the status of any combination of authorized but
unissued shares, newly issued shares, or treasury shares.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. ELIGIBILITY AND PARTICIPATION. To be eligible to participate in the Plan for a given Purchase
Period, an employee must be an Eligible Employee on the first day of such Purchase Period. An
Eligible Employee may elect to participate in the Plan by filing an enrollment form with the
Company before the first day of such Purchase Period that authorizes regular payroll deductions
from Compensation beginning with the first payday in such Purchase Period and continuing until the
Eligible Employee withdraws from the Plan, modifies his or her authorization, or ceases to be an
Eligible Employee, as hereinafter provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. AMOUNT OF COMMON STOCK EACH ELIGIBLE EMPLOYEE MAY PURCHASE.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1. Subject to the provisions of the Plan, each Eligible Employee shall be offered the right
to purchase on the last day of the Purchase Period the number of shares of Common Stock (including
fractional shares) that can be purchased at the price specified in Section&nbsp;5.2 with the entire
credit balance in the Participant&#146;s Recordkeeping Account; provided, however, that the Fair Market
Value (determined on the first day of any Purchase Period) of shares of Common Stock that may be
purchased by a Participant during such Purchase Period shall not exceed the excess, if any, of (i)
$25,000 over (ii)&nbsp;the Fair Market Value (determined on the first day of the relevant Purchase
Period) of shares of Common Stock previously acquired by the Participant in any prior Purchase
Period during such calendar year. Notwithstanding the foregoing, no Eligible Employee shall be
granted an option to acquire shares of Common Stock under this Plan which permits the Eligible
Employee&#146;s rights to purchase shares of Common Stock under this Plan and all employee stock
purchase plans of the Company and the Affiliates to accrue at a rate which exceeds $25,000 of Fair
Market Value (determined at the time such option is granted) for each calendar year in which such
option is outstanding at any time. If the purchases by all Participants would otherwise cause the
aggregate number of shares of Common Stock to be sold under the Plan to exceed the number specified
in Section&nbsp;3, however, each Participant shall be allocated at a ratable portion of the maximum
number of shares of Common Stock which may be sold.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2. The purchase price of each share of Common Stock sold pursuant to this Plan will be the
lesser of (a)&nbsp;or (b)&nbsp;below: (a)&nbsp;85% of the Fair Market Value of such share on the first day of the
Purchase Period. (b)&nbsp;85% of the Fair Market Value of such share on the last day of the Purchase
Period.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">6. METHOD OF PARTICIPATION.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1. The Company shall give notice to each Eligible Employee of the opportunity to purchase
shares of Common Stock pursuant to this Plan and the terms and conditions for such offering. Such
notice is subject to revision by the Company at any time prior to the date of purchase of such
shares. The Company contemplates that for tax purposes the first day of a Purchase Period will be
the date of the offering of such shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2. Each Eligible Employee who desires to participate in the Plan for a Purchase Period shall
signify his or her election to do so by signing an election form developed by the Committee. An
Eligible Employee may elect to have any whole percent of Compensation withheld, but not exceeding
ten percent (10%) per pay period. An election to participate in the Plan and to authorize payroll
deductions as described herein must be made before the first day of the Purchase Period to which it relates and shall remain in effect unless and until such
Participant withdraws from this Plan, modifies his or her authorization, or terminates his or her
employment with the Company, as hereinafter provided.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3. Any Eligible Employee who does not make a timely election as provided in Section&nbsp;6.2,
shall be deemed to have elected not to participate in the Plan. Such election shall be irrevocable
for such Purchase Period.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">7. RECORDKEEPING ACCOUNT.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1. The Company shall maintain a Recordkeeping Account for each Participant. Payroll
deductions pursuant to Section&nbsp;6 will be credited to such Recordkeeping Accounts on each payday.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2. No interest will be credited to a Participant&#146;s Recordkeeping Account.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3. The Recordkeeping Account is established solely for accounting purposes, and all amounts
credited to the Recordkeeping Account will remain part of the general assets of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4. A Participant may not make any separate cash payment into the Recordkeeping Account.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">8. RIGHT TO ADJUST PARTICIPATION OR TO WITHDRAW.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1. A Participant may, at any time during a Purchase Period, direct the Company to make no
further deductions from his or her Compensation or to adjust the amount of such deductions. Upon
either of such actions, future payroll deductions with respect to such Participant shall cease or
be adjusted in accordance with the Participant&#146;s direction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2. Any Participant who stops payroll deductions may not thereafter resume payroll deductions
during such Purchase Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3. At any time before the end of a Purchase Period, any Participant may also withdraw from
the Plan. In such event, all future payroll deductions shall cease and the entire credit balance in
the Participant&#146;s Recordkeeping Account will be paid to the Participant, without interest, in cash
within 15&nbsp;days. A Participant who withdraws from the Plan will not be eligible to reenter the Plan
until the next succeeding Purchase Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4. Notification of a Participant&#146;s election to adjust or terminate deductions, or to
withdraw from the Plan, shall be made by the filing of an appropriate notice to such effect with
the Company.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">9. TERMINATION OF EMPLOYMENT. If the employment of a Participant is terminated for any reason,
including death, disability, or retirement, the entire balance in the Participant&#146;s Recordkeeping
Account will be applied to the purchase of shares as provided in Section&nbsp;10.1 as of the last day of the Purchase Period in which the Participant&#146;s employment terminated; except
that if such Participant so requests prior to the last day of such Purchase Period, the Company
shall refund in cash within 15&nbsp;days all amounts credited to his or her Recordkeeping Account.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

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



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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1. As of the last day of the Purchase Period, the entire credit balance in each
Participant&#146;s Recordkeeping Account will be used to purchase shares (including fractional shares)
of Common Stock (subject to the limitations of Section&nbsp;5) unless the Participant has filed an
appropriate form with the Company in advance of that date (which either elects to purchase a
specified number of shares which is less than the number described above or elects to receive the
entire credit balance in cash). Any amount in a Participant&#146;s Recordkeeping Account that is not
used to purchase shares pursuant to this Section&nbsp;10.1 will be refunded to the Participant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2. Shares of Common Stock acquired by each Participant shall be held in a general account
maintained for the benefit of all Participants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3. Certificates for the number of whole shares of Common Stock, determined as aforesaid,
purchased by each Participant shall be issued and delivered to him or her only upon request of the
Participant or his or her representative directed to the Company. No Certificates for fractional
shares will be issued. Instead, Participants will receive a cash distribution representing any
fractional shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.4. Dividends with respect to a Participant&#146;s shares held in the general account will, at
the election of the Participant, either be paid to the Participant in cash or reinvested in
additional shares of Common Stock. If a Participant fails to make such an election, all dividends
with respect to the Participant&#146;s shares held in the general account will automatically be
reinvested to purchase additional shares of Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.5. Each Participant will be entitled to vote all shares held for the benefit of such
Participant in the general account.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">11. RIGHTS AS A STOCKHOLDER. A Participant shall not be entitled to any of the rights or privileges
of a stockholder of the Company with respect to such shares, including the right to receive any
dividends which may be declared by the Company, until (i)&nbsp;he or she actually has paid the purchase
price for such shares and (ii)&nbsp;either the shares have been credited to his or her account or
certificates have been issued to him or her, both as provided in Section&nbsp;10.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">12. RIGHTS NOT TRANSFERABLE. A Participant&#146;s rights under this Plan are exercisable only by the
Participant during his or her lifetime, and may not be sold, pledged, assigned or transferred in
any manner other than by will or the laws of descent and distribution. Any attempt to sell, pledge,
assign or transfer the same shall be null and void and without effect. The amounts credited to a
Recordkeeping Account may not be assigned, transferred, pledged or hypothecated in any way, and any
attempted assignment, transfer, pledge, hypothecation or other disposition of such amounts will be
null and void and without effect.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">13. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the Committee, which is
authorized to make such uniform rules as may be necessary to carry out its provisions. The
Committee shall determine any questions arising in the administration, interpretation and
application of this Plan, and all such determinations shall be conclusive and binding on all
parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">14. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. In the event of any equity restructuring (within
the meaning of Financial Accounting Standards No.&nbsp;123 (revised 2004)) that causes the per Share
value of Shares to change, such as a stock dividend, stock split, spin off, rights offering, or
recapitalization through a large, nonrecurring cash dividend, the Committee shall cause there to be
made an equitable adjustment to the number, class and purchase price of Shares that may be
purchased under the Plan. In the event of any other change in corporate capitalization, such as a
merger, consolidation, any reorganization (whether or not such reorganization comes within the
definition of such term in Section&nbsp;368 of the Code), or any partial or complete liquidation of the
Company, such equitable adjustments described in the foregoing sentence may be made as determined
to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights. In
either case, any such adjustment shall be conclusive and binding for all purposes of the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">15. REGISTRATION OF CERTIFICATES. Stock certificates will be registered in the name of the
Participant, or jointly in the name of the Participant and another person, as the Participant may
direct on an appropriate form.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">16. AMENDMENT OF PLAN. The Board of Directors may at any time amend this Plan in any respect which
shall not adversely affect the rights of Participants pursuant to shares previously acquired under
the Plan, except that, without stockholder approval, no amendment shall be made (i)&nbsp;to increase the
number of shares to be reserved under this Plan, (ii)&nbsp;to decrease the minimum purchase price, (iii)
to withdraw the administration of this Plan from the Committee, or (iv)&nbsp;to change the definition of
employees eligible to participate in the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">17. EFFECTIVE DATE OF PLAN. This Plan shall consist of an offering commencing April&nbsp;1, 1996, and
ending June&nbsp;30, 1996, and continuing on a quarterly basis thereafter. All rights of Participants in
any offering hereunder shall terminate at the earlier of (i)&nbsp;the day that Participants become
entitled to purchase a number of shares of Common Stock equal to or greater than the number of
shares remaining available for purchase or (ii)&nbsp;at any time, at the discretion of the Board of
Directors, after 30&nbsp;days&#146; notice has been given to all Participants. Upon termination of this Plan,
shares of Common Stock shall be issued to Participants in accordance with Section&nbsp;10, and cash, if
any, remaining in the Participant&#146;s Recordkeeping Accounts shall be refunded to them, as if the
Plan were terminated at the end of a Purchase Period.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">18. GOVERNMENTAL REGULATIONS AND LISTING. All rights granted or to be granted to Eligible Employees
under this Plan are expressly subject to all applicable laws and regulations and to the approval of
all governmental authorities required in connection with the authorization, issuance, sale or
transfer of the shares of Common Stock reserved for this Plan, including, without limitation, there
being a current registration statement of the Company under the Securities Act of 1933, as amended,
covering the shares of Common Stock purchasable on the last day of the Purchase Period applicable to such shares, and if such a registration statement
shall not then be effective, the term of such Purchase Period shall be extended until the first
business day after the effective date of such a registration statement, or post-effective amendment
thereto. If applicable, all such rights hereunder are also similarly subject to effectiveness of an
appropriate listing application to a national securities exchange or a national market system,
covering the shares of Common Stock under the Plan upon official notice of issuance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">19. MISCELLANEOUS.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.1. This Plan shall not be deemed to constitute a contract of employment between the Company
and any Participant, nor shall it interfere with the right of the Company to terminate any
Participant and treat him or her without regard to the effect which such treatment might have upon
him or her under this Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.2. Wherever appropriate as used herein, the masculine gender may be read as the feminine
gender, the feminine gender may be read as the masculine gender, the singular may be read as the
plural and the plural may be read as the singular.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.3. The Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Minnesota.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.4. Delivery of shares of Common Stock or of cash pursuant to this Plan shall be subject to
any required withholding taxes. A person entitled to receive shares of Common Stock may, as a
condition precedent to receiving such shares, be required to pay the Company a cash amount equal to
the amount of any required withholdings.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(A)
<SEQUENCE>4
<FILENAME>c11903exv31wxay.htm
<DESCRIPTION>CERTIFICATION
<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&nbsp;No.&nbsp;31(a)</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO SECTION 302 OF THE<BR>
SARBANES-OXLEY ACT OF 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Joseph T. Dunsmore, President, Chief Executive Officer and Chairman of Digi International Inc.,
certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this quarterly report on Form 10-Q of Digi International
Inc.;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. 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
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules&nbsp;13a-15(f) and 15d-15(f)) for the Registrant and have:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;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">(b)&nbsp;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">(c)&nbsp;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">(d)&nbsp;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">5. 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:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;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">(b)&nbsp;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="left" style="font-size: 10pt; margin-top: 12pt">February&nbsp;7, 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="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&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">&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 valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
<FONT style="white-space: nowrap">Joseph T. Dunsmore, President, Chief Executive Officer and Chairman</FONT>
</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 --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.(B)
<SEQUENCE>5
<FILENAME>c11903exv31wxby.htm
<DESCRIPTION>CERTIFICATION
<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&nbsp;No.&nbsp;31(b)</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO SECTION 302 OF THE<BR>
SARBANES-OXLEY ACT OF 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Subramanian Krishnan, Senior Vice President, Chief Financial Officer and Treasurer of Digi
International Inc. certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this quarterly report on Form 10-Q of Digi International
Inc.;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. 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
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules&nbsp;13a-15(f) and 15d-15(f)) for the Registrant and have:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;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">(b)&nbsp;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">(c)&nbsp;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">(d)&nbsp;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">5. 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:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;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">(b)&nbsp;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="left" style="font-size: 10pt; margin-top: 12pt">February&nbsp;7, 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="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&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">&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 valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Subramanian Krishnan
</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"><FONT style="white-space: nowrap">Senior Vice President, Chief Financial Officer and Treasurer</FONT></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 --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>6
<FILENAME>c11903exv32.htm
<DESCRIPTION>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"><B>Exhibit&nbsp;No.&nbsp;32</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION PURSUANT TO SECTION 906 OF THE<BR>
SARBANES-OXLEY ACT OF 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Quarterly Report of Digi International Inc. (the Registrant) on Form 10-Q
for the fiscal quarter ending December&nbsp;31, 2006 as filed with the Securities and Exchange
Commission on the date hereof, each of the undersigned certifies, pursuant to 18 U.S.C. &#167;1350, as
adopted pursuant to &#167;906 of the Sarbanes-Oxley Act of 2002, that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(1)&nbsp;The Quarterly Report on Form 10-Q complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(2)&nbsp;The information contained in the Quarterly Report on
Form 10-Q fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">February&nbsp;7, 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="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&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 valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
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Joseph T. Dunsmore
</TD>
    <TD>&nbsp;</TD>
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</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT style="white-space: nowrap">President, Chief Executive Officer, and Chairman</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
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</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/Subramanian Krishnan</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
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Subramanian Krishnan
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT style="white-space: nowrap">Senior Vice President, Chief Financial Officer and Treasurer</FONT></TD>
    <TD>&nbsp;</TD>
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