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<SEC-DOCUMENT>0000950123-10-109326.txt : 20101129
<SEC-HEADER>0000950123-10-109326.hdr.sgml : 20101129
<ACCEPTANCE-DATETIME>20101129161424
ACCESSION NUMBER:		0000950123-10-109326
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20100930
FILED AS OF DATE:		20101129
DATE AS OF CHANGE:		20101129

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-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-34033
		FILM NUMBER:		101219076

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

	MAIL ADDRESS:	
		STREET 1:		11001 BREN ROAD EAST
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c61561e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vk</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


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




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

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

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

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

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


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


<!-- xbrl,dc -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the fiscal year ended: September&nbsp;30, 2010</B></DIV>
<!-- /xbrl,dc -->

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><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 style="font-family: Wingdings">&#111;</FONT> </TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the transition period from &#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95; to &#95;&#95;&#95;&#95;&#95;&#95;&#95;.</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>
Commission file number: 1-34033</B>
</DIV>

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

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

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

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

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

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

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="font-size: 8pt">
    <TD align="center" valign="top"><B>Title of each class</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Name of each exchange on which registered</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">Common Stock, par value $.01 per share
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">The NASDAQ Global Select Market</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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


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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months, and (2)
has been subject to such filing requirements for the past 90&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Yes <FONT style="font-family: Wingdings">&#254;</FONT> No <FONT style="font-family: Wingdings">&#111;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule&nbsp;405 of Regulation&nbsp;S-T (&#167;232.405 of this chapter) during the preceding 12&nbsp;months
(or for such shorter period that the registrant was required to submit and post such files.) Yes
<FONT style="font-family: Wingdings">&#111;</FONT> No <FONT style="font-family: Wingdings">&#111;</FONT>
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of &#147;large accelerated
filer,&#148; &#147;accelerated filer,&#148; and &#147;smaller reporting company&#148; in Rule&nbsp;12b-2 of the Exchange Act.
</DIV>

<TABLE width="100%" style="FONT-size: 10pt; margin-top: 0pt">
<TR valign="top"><TD>Large accelerated filer&nbsp;<FONT style="font-family: Wingdings">&#111;</FONT></TD>
<TD align="center">Accelerated
filer&nbsp;<FONT style="font-family: Wingdings">&#254;</FONT>&nbsp;</TD>
<TD align="center">Non-accelerated filer&nbsp;<FONT style="font-family: Wingdings">&#111;</FONT><BR>(Do not check if a smaller reporting company)</TD>
<TD align="right">Smaller reporting company&nbsp;<FONT style="font-family: Wingdings">&#111;</FONT></TD></TR></TABLE>


<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 style="font-family: Wingdings">&#111;</FONT> No <FONT style="font-family: Wingdings">&#254;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The aggregate market value of voting stock held by non-affiliates of the Registrant as of the last
business day of the Registrant&#146;s most recently completed second fiscal quarter was $262,852,499
based on a closing price of $10.64 per common share as reported on the NASDAQ Global Select Market
(formerly the NASDAQ National Market).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Shares of common stock outstanding as of November&nbsp;23, 2010: 25,107,340
</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"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>








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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">DOCUMENTS INCORPORATED BY REFERENCE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table shows, except as otherwise noted, the location of information required in this
Form 10-K, in our Annual Report to Stockholders for the year ended September&nbsp;30, 2010 and Proxy
Statement for our Annual Meeting of Stockholders scheduled for January&nbsp;20, 2011. All such
information set forth below under the heading &#147;Page/Reference&#148; is incorporated herein by reference,
or included in this Form 10-K on the pages indicated.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD valign="top" align="left" nowrap>&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD valign="top" align="left" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">ITEM IN FORM 10-K</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">PAGE/REFERENCE</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#101"><U>PART I</U>.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#102">ITEM 1.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#103">ITEM 1A.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#104">ITEM 1B.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Unresolved Staff Comments</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#105">ITEM 2.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Properties</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#106">ITEM 3.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#107"><U>PART II.</U></A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#108">ITEM 5.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Market for Registrant&#146;s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#109">ITEM 6.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Selected Financial Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#110">ITEM 7.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Management&#146;s Discussion and
Analysis of Financial Condition and
Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#111">ITEM 7A.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Quantitative and Qualitative Disclosures
About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#112">ITEM 8.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Financial Statements and Supplementary Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#113">ITEM 9.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#114">ITEM 9A.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#115">ITEM 9B.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</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="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD valign="top" align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD valign="top" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">ITEM IN FORM 10-K</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">PAGE/REFERENCE</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap><A href="#116"><U>PART III</U>.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#117">ITEM 10.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Directors, Executive Officers and
Corporate Governance</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#118">ITEM 11.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Executive Compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#119">ITEM 12.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Security Ownership of Certain Beneficial
Owners and Management and
Related Stockholder Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#120">ITEM 13.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Certain Relationships and Related
Transactions and Director Independence</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#121">ITEM 14.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Principal Accounting Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#122"><U>PART IV</U>.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#123">ITEM 15.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">Exhibits, Financial Statement Schedules</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv3wb.htm">EX-3.B</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv21.htm">EX-21</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv23.htm">EX-23</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv24.htm">EX-24</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv31wa.htm">EX-31.A</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv31wb.htm">EX-31.B</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c61561exv32.htm">EX-32</A></FONT></TD></TR>
</TABLE>
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<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</B>
</DIV>

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

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

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

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

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

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
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<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The terms &#147;we,&#148; &#147;our&#148; or &#147;us&#148; mean Digi International Inc. and all of the subsidiaries included in
the consolidated financial statements unless the context indicates otherwise.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International Inc. was formed in 1985 as a Minnesota corporation and reorganized as a Delaware
corporation in 1989 in conjunction with its initial public offering. Our common stock is traded on
the NASDAQ Global Select Market under the symbol DGII. With our global headquarters in Minnetonka,
Minnesota, and regional sales offices throughout North America, Europe and Asia, our products are
available through approximately 280 distributors located in approximately 70 countries. We also
have engineering locations in North America, Europe and India.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our first products (sold under the DigiBoard<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> brand) were box and board-level serial port adapters
that were used to directly connect multiple peripherals, such as standalone computer terminals, to
personal computers or a host computer system. During the 1990s, Ethernet became the connectivity
infrastructure for businesses and over time it has been extended into factories, retail stores,
restaurants, hospitals and many other environments. During the same period, the semiconductor
industry was also in a phase of rapid advancement. Complete systems were being built on a single
integrated circuit (chip). As part of a box or board level product, these chips could be used to
build a network interface for virtually any device for which network connectivity was required.
Recognizing the developing opportunities for device connectivity, we implemented a strategy in
early 2000 to leverage the brand strength that we had established with the DigiBoard product line
by organically
</DIV>



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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">developing or acquiring next-generation connectivity products and technologies that would extend
the value of the Digi brand into an array of device networking applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the course of the past several years, we augmented our strategy with an increased emphasis
on developing wireless device connectivity solutions. In fiscal 2007, we launched our &#147;Drop-in
Networking&#148; initiative which provides end-to-end wireless access to electronic devices in places
where wires will not work or cannot be used. Drop-in Networking enables our customers to
differentiate their products, provide better customer service and frequently create new revenue
streams. Our Drop-in Networking initiative provides opportunities for us in the next wave of
Internet growth. The initial wave was focused on connecting people, first with personal computers
and then with cell phones, PDAs and other related consumer devices. This next wave focuses on
connecting devices and machines. We believe that the Internet will support billions of new devices
in the next several years. We are ideally positioned to take full advantage of the second wave of
Internet growth with our Drop-in Networking Solutions that will provide significant market
expansion in what is now being referred to in the market as wireless machine to machine (M2M)
connectivity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">M2M communication works by connecting communication hardware to a physical asset so that
information about its status and performance can be sent to a computer system and used to automate
a business process or a human action so that a person does not have to do it manually. By
incorporating products from both our embedded and non-embedded categories, our Drop-In Networking
Solutions are making it easy for customers to effectively &#147;drop-in&#148; a wireless M2M solution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In fiscal 2009, we expanded on our Drop-in Networking initiative and introduced the iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> M2M
network operating platform. This Platform as a Service (PaaS) quickly and easily connects remote
assets to a customer&#146;s business applications. The iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> platform also includes a control center
application (iDigi Manager Pro&#153;) which enables easy provisioning, maintenance and management of the
devices themselves as well as the associated connectivity. The iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> platform runs on a grid of
Digi-managed servers. As an on-demand model, customers pay only for services consumed, conserving
capital and requiring minimal infrastructure to operate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">With our breadth of products, services and management software, as well as partnerships with
leading device manufacturers and application providers, we are now able to offer complete Digi
Solution bundles &#151; end-to-end, fully customizable, industry-specific solutions that can be
deployed with unprecedented speed. Digi Energy, Digi Tank and Digi Fleet, the first Digi solution
offerings, provide scalable, real-time monitoring and management capabilities that have previously
not been available.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Digi Energy </B>&#151; Digi Energy was launched as the first Digi solution bundle, targeting the Smart Grid
efforts of energy services providers. Creating a Smart Grid using new levels of monitoring and
control to improve the efficiency, security and reliability of the grid is a major focus in the
world today.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2010, we extended our Digi Energy offering and introduced Digi X-Grid&#153; solutions, which provide
connectivity, control and support of all devices in the &#147;Extended Grid.&#148; The Extended Grid
comprises devices that exist beyond the meter in homes and businesses. It is only by leveraging
these devices and thereby enabling end users of energy to be actively engaged with energy producers
that we can recognize the full benefits of the Smart Grid. We provide provisioning tools, Smart
Energy profile certified products (e.g., gateways, modules), the iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> platform and other
services; our partners provide devices such as meters and in-home displays, plus application
integration. Together with our partners, we are making the Extended Grid a reality, with over
30,000 gateways deployed in Residential Energy Management solutions today and over 100,000 under
contract.
</DIV>





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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Digi Tank </B>&#151; Our second Digi solution bundle is optimized for remote tank monitoring of storage
tanks containing liquids, solids and gases. Tank monitoring can reduce supply chain costs and
insure tank-stored inputs to a production process are available and of necessary quality. Digi
Tank solutions include our wired and wireless communication gateways, ZigBee modules and ZigBee
adapters; the iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> platform, which provides management, messaging and storage services to connect
remote assets and enterprise applications; iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Device Integration Application (iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Dia)
device connection software; a growing list of wireless sensor partners; iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> application
partners, with ready-to-implement tank management applications; and Digi Professional Services for
device and solution design, deployment planning, integration and optimization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Digi Fleet &#151; </B>Digi Fleet is the third Digi solution bundle. Comprised of our rugged mobile
gateways with support for Wi-Fi, cellular, ZigBee and satellite technologies, as well as the iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>
platform and Digi Professional Services, Digi Fleet solutions provide tracking, monitoring and
management of large numbers of high-value mobile assets. These solutions improve efficiency,
reduce costs and meet government regulations for connecting and monitoring tractors, trailers and
containers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We continue to leverage a common core technology base to develop and provide innovative
connectivity solutions to our customers. Core technology is used across product lines to provide
additional functionality for customers, allowing them to get to market with network-enabled devices
faster. We have positioned ourselves in the growing market of integrated hardware and software
connectivity solutions to network-enable the coming generation of intelligent devices in business
applications. Our Drop-in Networking products and iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> brand are enabling us to pivot our
business from point products to solutions. We have strategic goals for the next three to five
years to change our revenue mix to be 60% wireless, 60% international, and at least 15% services.
We believe we are making progress towards these goals by increasing our investment in wireless
products, expanding internationally, and providing full solutions which include product and
services offerings to our customers.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are divided into two categories: embedded and non-embedded. An embedded product is
incorporated by a product developer into an electronic device (e.g., utility meter, environmental
sensors, retail scanner, and medical instruments) to provide processing power and wired or wireless
network connectivity to that device. Additional hardware and/or software development is required
on the part of the customer when using an embedded product as the product usually is an integrated
internal part of the device.
</DIV>

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


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Modules &#151; </B>Developing a device around a chip or microprocessor involves a high level of complexity.
A module is a group of components that are set up to work together, eliminating much of that
complexity. An embedded module may provide somewhat less flexibility than a chip, but is much
easier to implement into a product design. A number of these modules can be directly connected to
iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, enabling remote management and remote application connectivity.
</DIV>





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




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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 7pt"><B>PRODUCTS (CONTINUED)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our modules can be divided into two categories: processor modules and communications modules.
Processor modules provide customers with a networked platform for use as the main processor in an
embedded system and the flexibility to add in custom features and functionality, as this ensures a
quick time to market development cycle for a network-enabled device. These modules are targeted as
the core processors for products such as access control systems, Smart Energy devices,
Point-of-Sale (POS)&nbsp;systems, Radio Frequency ID (RFID)&nbsp;readers, medical devices and instrumentation
and networked displays. Communication modules are ideal for network-enabling and web-enabling a
device. They enable customers who wish to easily accommodate both wired and wireless functionality
in one product design. These modules make it very easy to add most any type of connectivity,
especially wireless connectivity. Typically with a communication module, there is another
processor performing the central processing. Adding wired or wireless network communication to a
device allows companies to manage that device over a network or via the Internet.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Software and Development Tools &#151; </B>Coupled with the chips and modules are a variety of development
tools and associated software to make application development easy. We provide software and tools
for a variety of operating environments and developer skill sets. These include Linux<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> and
Microsoft<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Windows<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Embedded CE as well as our own Net&#043;OS, Dynamic C and Python based iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Dia.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Satellite &#151; </B>Our acquisition of MobiApps Holdings Private Limited (MobiApps) in June&nbsp;2009 added
satellite communication products that provide worldwide satellite data transmit/receive
capabilities for customers involved in satellite-based tracking and industrial remote
communications. Operating over the ORBCOMM low-earth orbit satellite network, these products can
significantly improve asset utilization by allowing clients to monitor, track and manage their
fixed and mobile assets around the world.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cellular Routers &#151; </B>Cellular routers provide connectivity for devices over a cellular data network.
They can be used as a cost effective alternative to landlines for primary or backup connectivity
for hard to reach sites and devices. We introduced the first intelligent high-speed cellular
router in 2005 to address the growing need for customers to connect remote sites and devices.
These products have been certified by the major wireless providers in North America and abroad,
including AT&#038;T<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, Verizon Wireless<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, Sprint<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, Bell Mobility and Rogers. All of our cellular
products include a unique remote management platform that provides secure
</DIV>




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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">management of devices across remote networks. In addition, application connectivity, management
and customization is enabled via the iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> platform for many of these products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Gateways &#151; </B>A gateway aggregates local wireless data traffic and transports it over a cellular or
other Internet Protocol (IP)-based network, usually back to a central application or database. Our
gateway products, part of our Drop-in Networking solution, enable devices or groups of devices to
be networked in locations where there is no existing network or where access to a network is
prohibited. These gateways can work in conjunction with our wireless adapters and wireless
embedded modules to enable customers to monitor and manage remote devices in a non-intrusive and
economical way. All of our gateway products are linked with iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> for secure management of
devices across remote networks, application connectivity and customization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Wireless Communication Adapters &#151; </B>Our wireless communication adapters are small box products that
utilize a variety of wireless protocols for PC-to-device or device-to-device connectivity, often in
locations where deploying a wired network is not possible either because of cost, disruption or
impracticality. By supporting ZigBee<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, Wi-Fi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> and proprietary RF technologies, we can meet most
customer application requirements, such as serial cable replacement, Ethernet cable replacement,
mesh networking, low cost/low power remote monitoring, simple I/O control functions, environmental
sensors and long distance connectivity. In conjunction with one of our gateways, wireless
communication adapters plug into iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> for remote management, application connectivity and
customization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Serial Servers &#151; </B>Serial Servers (also known as device servers and terminal servers) add wired or
wireless network connectivity to a serial device. They transfer data between a serial port and an
Ethernet network, turning a previously isolated device with a serial port into a fully
collaborative network component. We believe that serial servers will remain an important product
category as Ethernet based serial connections continue to extend beyond their current applications
into many new markets such as building automation, healthcare, process control, and secure console
port management on servers, routers, switches and other network equipment. Many of our serial
servers can also leverage iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> for application connectivity, remote management and customization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Console Servers &#151; </B>Console servers, or console management servers, provide access to the serial
ports of network equipment such as servers, routers or switches. Our intelligent console servers
enable customers to access, monitor or manage their network devices across multiple sites, both
remotely over the network or via their console ports even during network outages. These console
servers provide advanced auditing and logging capabilities that complement regulatory compliance
efforts such as the Sarbanes-Oxley Act of 2002 and Health Insurance Portability and Accountability
Act of 1996 (HIPAA).
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Serial Cards &#151; </B>A serial card plugs into the expansion slot of a computer to provide serial ports
for device connectivity. We are a global leader in this category and offer one of the most
extensive serial card product families. Our products support a wide range of operating systems,
port densities, bus types, expansion options
</DIV>




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<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and applications. As Ethernet connections extend beyond current applications, the serial card
products are gradually transitioning to network-attached and/or USB-attached devices. We have
strengthened our product offering to meet customer needs and fully support this mature product line
while working to seamlessly transition customers to newer technologies.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also provide a variety of services to complement our products. Our services are included under
our embedded product grouping as they are not material to our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> </B>&#151; iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> is an M2M network operating platform, used by software developers and
organizations responsible for supporting the network. iDigi<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> is used to connect enterprise
applications to remote devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Digi m-Trak&#153; </B>&#151; The Digi m-Trak&#153; mobile asset tracking solution provides reliable, cost-effective
fleet monitoring and management. Combining GPS technology and wireless communication with an
easy-to-use web-based management application, the Digi m-Trak&#153; system ensures constant, on-demand
access to fleet information at any time, from any place. Digi m-Trak&#153; is only available in India,
and parts of the Middle East, Africa, and Southeast Asia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Engineering Design Services &#151; </B>Through our subsidiary, Spectrum Design Solutions, Inc. (Spectrum),
we offer engineering design services to customers that are challenged with their wireless
development projects. Our specialized engineers have extensive experience in wireless technologies
such as Global System for Mobile communication (GSM), Code Division Multiple Access (CDMA), Global
Positioning System (GPS), Wi-Fi and proprietary radio frequency (RF)&nbsp;as well as Application
Specific Integrated Circuit (ASIC)&nbsp;design, Field Programmable Gate Array (FPGA)&nbsp;integration,
embedded software and complete turn-key product development which allows them to address virtually
any wireless development need.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe we are a worldwide leader in commercial grade device connectivity, through
network-enabling devices in stores, factories, office buildings, banks, gas stations, oil rigs,
hospitals, and many other vertical environments. We are heavily focused on four application
markets and we offer solution bundles as described above for energy, tank and fleet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Smart Energy &#151; </B>Our products, including Digi X-Grid&#153; solutions, simplify and accelerate the
integration of energy management systems with remote energy assets. These energy management
systems are necessary for Smart Grid initiatives encompassing both energy distribution and energy
consumption management. Migrating to IP-based network communications can be a challenge for
utility companies, due to compatibility issues between field equipment and the applications used
with them. Our products enable companies to network-enable existing products in the field without
replacing hardware or rewriting existing application software and are used in Automated Meter
Reading (AMR), Automated Meter Intelligence (AMI), Energy Management Services, Distribution
Automation and other smart energy applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Tank Monitoring/Management &#151; </B>Our wireless Tank Monitoring/Management solutions help companies more
efficiently integrate, manage and monitor remotely deployed tanks of liquids, solids and gases. We
offer end-to-end, fully customizable wireless hardware, a software platform and services that can
be used to create and deploy secure, highly scalable and flexible tank monitoring solutions with
unprecedented speed.
</DIV>




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<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
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    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Fleet Management &#151; </B>Some of our newest products have extended our network connectivity expertise
into Fleet Management. Using a combination of cellular, satellite, Wi-Fi and ZigBee wireless
connectivity, these solutions provide improved operating efficiency and asset management. We
provide equipment and applications for connecting and tracking commercial vehicles, primarily
focused on long-haul trucking, but extending to other areas of public and private fleets, including
taxis, public transit, emergency service vehicles, heavy equipment and others. Applications also
include container/traffic tracking, stolen vehicle recovery, and recording driver behavior metrics.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, we have a long history of successful deployments in other application markets,
including Remote Device Management, Building Automation/Security, Traffic Management, Industrial
Automation, Retail/Point-of-Sale (POS), Data Center Management, Digital Signage, and Government.
</DIV>


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

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


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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In July&nbsp;2006, we acquired MaxStream<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, Inc. (MaxStream), a leader in the wireless device
networking market. MaxStream supplies device manufacturers and integrators with reliable
wireless modules and box products that are easy to use and allow customers to wirelessly
monitor and control electronic devices. Typical applications include automated utility
meter reading, oil and gas monitoring, remote control and monitoring of commercial heating
and air conditioning systems, vehicle information access for fleet management, industrial
controls, wireless sensors, and electronic signals. MaxStream was also a pioneer in the
field of ZigBee<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>/802.15.4 wireless communications. The MaxStream acquisition significantly
expanded our wireless offering both with embedded modules and non-embedded wireless
communications adapters. The products also play a key role in our Drop-in Networking
initiative. Effective October&nbsp;1, 2007, MaxStream merged into Digi International Inc.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2008, we acquired Sarian Systems, Ltd. (Sarian), a leader in the European
wireless router market. Sarian designs, develops and manufactures advanced
wireless/cellular IP-based routing equipment for mission critical applications. Sarian
developed its own comprehensive IP-based operating system and software and can offer
customers technical excellence, flexibility and rapid customization. Sarian has a strong
customer base in ATM connectivity, retail and payment systems connectivity, remote
monitoring telemetry, lottery terminal connectivity and wireless backup of wired broadband
connections. Effective October&nbsp;1, 2009, Sarian merged into Digi International (UK)&nbsp;Ltd.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In July&nbsp;2008, we acquired Spectrum Design Solutions, Inc. (Spectrum), a leading design
services organization. Spectrum is a wholly owned subsidiary of Digi International Inc.
Spectrum focuses on solving a customer&#146;s wireless development challenges. Spectrum&#146;s
engineers have extensive experience in wireless technologies such as GSM, CDMA, GPS, Wi-Fi
and proprietary RF as well as ASIC design, FPGA integration, embedded software and complete
turn-key product development which allows them to address virtually any wireless
development need.</TD>
</TR>



</TABLE>
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</TABLE>
</DIV>

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


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


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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In June&nbsp;2009, we acquired substantially all the assets of MobiApps Holdings Private
Limited (MobiApps), a developer of M2M communications technology focusing on satellite,
cellular and hybrid satellite/cellular solutions. MobiApps has locations in India,
Singapore and in the U.S. Pursuant to the terms of the asset purchase agreements, Digi
International acquired the U.S. assets located in Herndon, Virginia. In addition, we
established Digi Wireless Singapore Pte. Ltd. and Digi m2m Solutions India Private Limited,
which acquired the assets of MobiApps&#146; affiliate companies, located in Singapore and India,
respectively. MobiApps provides a new generation of products based on its own custom
designed and patented mixed signal ASIC, which dramatically reduces the complexity and
improves performance of satellite M2M system solutions. Satellite M2M applications include
fleet management, marine vessel tracking, container tracking, agricultural monitoring,
energy management, and remote field service applications. Satellite is especially suited to
applications that cross country and continental boundaries, providing connectivity in very
remote locations, and providing mission critical wireless backup solutions when cellular
coverage is insufficient. MobiApps also has cellular and hybrid cellular/satellite products
packaged with various asset tracking management services, including vehicle tracking, taxi
dispatch and employee tracking, focused on markets in India and Southeast Asia.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are sold under the Digi, Rabbit, iDigi&#174;, Digi m-Trak&#153; and Spectrum brands. We believe
the Digi and Rabbit brands have established strong identities with our targeted customer base and
we believe our customers associate the Digi brand with &#147;reliability&#148; and the Rabbit brand with
&#147;ease of integration.&#148; Many of our customers choose us because they are building a very complex
system solution and they want the highest level in product reliability. In the core module and
semiconductor application environments, ease of integration is a powerful brand identity.
</DIV>


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our larger distributors include Tech Data Corporation, Arrow Electronics, Inc./NuHorizons, Ingram
Micro, Synnex, Future Electronics, Miel, Atlantik Elektronik GmbH, B&#038;B Electronics Manufacturing
and Express Systems &#038; Peripherals. We also maintain relationships with many other distributors in
the U.S., Canada, Europe, Asia and Latin America. Additionally, we maintain strong relationships
with catalog distributors CDW, Insight, Digi-Key and Mouser Electronics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We maintain strategic alliances with other industry leaders to develop and market technology
solutions. These include most major communications hardware and software vendors, operating system
suppliers, computer hardware manufacturers, cellular carriers and Smart Grid vendors. Key partners
include: Microsoft, VMware, Hewlett Packard, IBM, Dell, Toshiba, Atmel, Ember, Freescale,
Qualcomm, Sierra Wireless, Ericsson, Itron, AT&#038;T, Sprint, Verizon, Bell Mobility, Rogers and
several other cellular carriers worldwide. Furthermore, we maintain a worldwide network of
authorized developers that extends our reach into certain other technology applications and
geographical regions. With our MobiApps acquisition, we are now partnering with ORBCOMM Inc.
MobiApps&#146; satellite communication products utilize ORBCOMM Inc.&#146;s low-earth orbit (LEO)&nbsp;satellite
network to monitor, track and manage customers&#146; fixed and mobile assets around the world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our customer base includes many of the world&#146;s largest companies. We have strategic sales
relationships with leading vendors, allowing them to ship our products and services as component
parts of their overall solutions. These vendors include IBM, Comverge, Xata, Itron and Gilbarco,
among others. Many of the world&#146;s leading
</DIV>




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<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
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    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">telecommunications companies and Internet service providers also rely on our products, including
Alcatel-Lucent, AT&#038;T, Sprint, Verizon and Siemens.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">No customer comprised more than 10% of our net sales for the years ended September&nbsp;30, 2010, 2009
and 2008.
</DIV>

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

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


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our operations are conducted through a combination of internal manufacturing and external
subcontractors specializing in various parts of the manufacturing process. We rely on third party
foundries for our semiconductor devices (ASICs). This approach is beneficial because it allows us
to reduce our fixed costs, maintain production flexibility and optimize our profits.
</DIV>

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


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, our business is not considered to be highly seasonal, although our first fiscal quarter
revenue is often less than other quarters due to holidays and fewer shipping days.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We fund our business operations through a combination of cash and cash equivalents, marketable
securities and cash generated from operations. We believe that these current financial resources,
cash generated from operations, and our capacity for debt and/or equity financing will be
sufficient to fund our business operations for the next twelve months and beyond.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal years 2010, 2009 and 2008, our research and development expenditures were $27.8
million, $26.4&nbsp;million and $27.1&nbsp;million, respectively. From time to time, we have customers that
pay for us to develop highly customizable products and we charge them fair market value for the
services performed. Due to rapidly
</DIV>




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<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
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    <TD></TD>
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    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">changing technology in the communications technology industry, we believe that our success depends
primarily upon the product development skills of our personnel, and the ability to integrate
acquired technologies with organically developed technologies. We have incurred in-process
research and development charges in connection with our past acquisitions, which were expensed upon
consummation of the acquisitions. Effective October&nbsp;1, 2009 in-process research and development
costs are capitalized according to new authoritative guidance issued by the Financial Accounting
Standards Board (FASB)&nbsp;related to business combinations. Such acquired in-process research and
development charges will be disclosed separately and will be incremental to the research and
development expenditures disclosed above. We have not yet incurred any capitalized in-process
research and development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our proprietary rights and technology are protected by a combination of copyrights, trademarks,
trade secrets and patents. We have established common law and registered trademark rights on a
family of marks for a number of our products. Our patents are applicable to specific technologies
and currently are valid for varying periods of time based on the date of patent application or
patent grant in the U.S. and the legal term of patents in the various foreign countries where
patent protection is obtained. We believe our intellectual property has significant value and is
an important factor in the marketing of our company and products.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Backlog as of September&nbsp;30, 2010 and 2009 was $26.8&nbsp;million and $13.6&nbsp;million, respectively. Most
of the backlog at September&nbsp;30, 2010 is expected to be shipped in fiscal 2011. Our backlog
increase as of September&nbsp;30, 2010 as compared to September&nbsp;30, 2009 is primarily due to an
improvement in domestic economic conditions and an increase in wireless customer orders. Backlog
as of any particular date is not necessarily indicative of our future sales trends.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We had 648 employees on September&nbsp;30, 2010.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our customers are located throughout North America, Europe, Middle East &#038; Africa (EMEA), Asia and
Latin America. We are exposed to foreign currency risk associated with certain sales transactions
being denominated in Euros, British Pounds and Japanese Yen and foreign currency translation risk
as the financial position and operating results of our foreign subsidiaries are translated into
U.S. Dollars for consolidation. We have not implemented a formal hedging strategy to reduce
foreign currency risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2010, we had approximately $75.2&nbsp;million of net sales related to foreign customers including
export sales, of which $27.6&nbsp;million was denominated in foreign currency, predominantly the Euro
and British Pound. During 2009 and 2008, we had approximately $75.2&nbsp;million and $76.1&nbsp;million,
respectively, of net sales to foreign customers including export sales, of which $33.4&nbsp;million and
$45.7&nbsp;million, respectively, were denominated in foreign currency, predominantly the Euro and
British Pound in fiscal 2009 and predominantly the Euro in fiscal 2008. In future periods, a
significant portion of sales will continue to be made in Euros and British Pounds. Financial
information about geographic areas appears in Note 4 to our Consolidated Financial Statements in
this Form 10-K.
</DIV>





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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>BUSINESS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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

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

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

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

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Multiple risk factors exist which could have a material effect on our operations, results of
operations, profitability, financial position, liquidity, capital resources and common stock.
</DIV>


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

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

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

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





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<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We intend to continue to devote significant resources to our research and development, which, if
not successful, could cause a decline in our revenues and harm our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We intend to continue to devote significant resources to research and development in the coming
years to enhance and develop additional products. For the fiscal years ended 2010, 2009 and 2008,
our research and development expenses comprised 15.2%, 15.9% and 14.6%, respectively, of our net
sales. If we are unable to develop new products as a result of our research and development
efforts, or if the products we develop are not successful, our business could be harmed. Even if
we develop new products that are accepted by our target markets, the net revenues from these
products may not be sufficient to justify our investment in research and development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Many of our products have been developed through a combination of internally developed technologies
and acquired technologies. Our ability to continue to develop new products is partially dependent
on finding and acquiring new technologies in the marketplace. Even if we identify new technologies
that we believe would be complementary to our internally developed technologies, we may not be
successful in acquiring those technologies or we may not be able to acquire the technologies at a
price that is acceptable to us.
</DIV>

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

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

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

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

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





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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our failure to compete successfully in our highly competitive market could result in reduced prices
and loss of market share.</I></B>
</DIV>

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

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our entry into a services and solutions model, using cloud-based services, presents execution and
competitive risks.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are deploying a services and solutions model using our own internally developed hosted services
and cloud-based platform, software, and supporting products. We are employing significant human
and financial resources to develop and deploy this cloud-based platform and strategies. While we
believe our wireless, device networking and connectivity expertise, investments in infrastructure,
and our innovative environment provide us with a strong foundation to compete, it is uncertain
whether our strategies will attract the users or generate the revenue required to be successful.
Whether we are successful in this new business model depends on our execution in a number of areas,
including:
</DIV>


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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to quickly and effectively put in place the infrastructure to deploy our
solution;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competing effectively in our targeted application markets, including energy, tank
monitoring, fleet management and medical; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deploying complete end-to-end solutions that accelerate our customers&#146; time to market.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We are dependent on wireless communication networks owned and controlled by others.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenues could decline if we are unable to deliver continued access to satellite and digital
cellular wireless carriers that we depend on to provide sufficient network capacity, reliability
and security to our customers. Our financial condition could be impacted if our wireless carriers
were to increase the prices of their services, or to suffer operational or technical failures.
</DIV>





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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The cyclicality of the semiconductor industry may result in substantial period-to-period
fluctuations in operating results.</I></B>
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Loss of one or more of our large customers could have an adverse effect on our revenues.</I></B>
</DIV>

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

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

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

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

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





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<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our use of suppliers in Southeast Asia involves risks that could negatively impact us.</I></B>
</DIV>

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

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

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

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

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

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





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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We face risks associated with our international operations and expansion that could impair our
ability to grow our revenues abroad.</I></B>
</DIV>

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

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

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

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

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

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


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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>problems combining the purchased operations, technologies, or products;
</TD>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>
 unanticipated costs;</TD>
</TR>

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

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

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

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes
in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of
our deferred tax assets and liabilities, or by changes in tax laws or our interpretation of such
laws. In addition, we may be subject to the
</DIV>




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

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


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">examination of our income tax returns by the Internal Revenue Service and other U.S. and
international tax authorities. We regularly assess the potential outcomes resulting from these
examinations to determine the adequacy of our provision for income taxes. There can be no
assurance that the outcomes from these examinations will not have an effect on our operating
results and consolidated financial condition.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our failure to effectively comply with regulatory laws pertaining to our foreign operations could
have a material adverse effect on our revenues and profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are required to comply with U.S. government export regulations in the sale of our products to
foreign customers, including requirements to properly classify and screen our products against a
denied parties list prior to shipment. We are also required to comply with the provisions of the
Foreign Corrupt Practices Act (FCPA)&nbsp;and all other anti-corruption laws of all other countries in
which we do business, directly or indirectly, including compliance with the anti-bribery
prohibitions and the accounting and recordkeeping requirements of this law. Violations of the FCPA
could trigger sanctions, including ineligibility for U.S. government insurance and financing, as
well as large fines. Failure to comply with the aforementioned regulations could also deter us
from selling our products in international jurisdictions, which could have a material adverse
effect on our revenues and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Negative conditions in the global credit markets may impair a portion of our investment portfolio.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our investment portfolio consists of certificates of deposit, corporate bonds and government
municipal bonds. These marketable securities are classified as available-for-sale and are carried
at fair market value. Some of our investments could experience reduced liquidity, resulting in an
adjustment and could result in an impairment charge should the impairment be considered as
other-than-temporary. This loss would be recorded in our consolidated statement of operations,
which could materially adversely impact our consolidated results of operations and financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our consolidated operating results and financial condition may be adversely impacted by worldwide
economic conditions and credit tightening.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If worldwide economic conditions experience a significant downturn, these conditions may make it
difficult or impossible for our customers and suppliers to accurately forecast and plan future
business activities, which may cause them to slow or suspend spending on products and services.
Our customers may find it difficult to gain sufficient credit in a timely manner, which could
result in an impairment of their ability to place orders with us
</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" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">or to make timely payments to us for previous purchases. If this occurs, our revenue may be
reduced, thereby having a negative impact on our results of operations. In addition, we may be
forced to increase our allowance for doubtful accounts and our days sales outstanding may increase,
which would have a negative impact on our cash position, liquidity and financial condition. We
cannot predict the timing or the duration of an economic downturn in the economy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may have additional tax liabilities.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are subject to income taxes in the United States and many foreign jurisdictions. Significant
judgment is required in determining our worldwide provision for income taxes, including our
reserves for uncertain tax positions. In the ordinary course of business, there are many
transactions and calculations where the ultimate tax determination is uncertain. We regularly are
under audit by tax authorities. Although we believe our tax estimates are reasonable, the final
determination of tax audits could be materially different from our historical income tax provisions
and accruals. The results of an audit could have a material effect on our financial position,
results of operations, or cash flows in the period or periods for which that determination is made.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If our stock price declines, we may need to recognize an impairment of our goodwill.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If the price of our common stock declines, we could have an impairment of our goodwill. Our value
is dependent upon continued future growth in demand for our products and solutions. If such growth
does not materialize or our forecasts are significantly reduced, we may impair our goodwill. We
perform our annual goodwill impairment assessment on our one reporting unit at June&nbsp;30 each year.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The market price of our common stock, like that of many other high-technology companies, has
fluctuated significantly and is likely to continue to fluctuate in the future. During fiscal year
2010, the closing price of our common stock on the NASDAQ Global Select Market ranged from $7.19 to
$12.30 per share. Our closing sale price on November&nbsp;23, 2010 was $9.68 per share. Announcements
by us or others regarding the receipt of customer orders, quarterly variations in operating
results, acquisitions or divestitures, additional equity or debt financings, results of customer
field trials, scientific discoveries, technological innovations, litigation, product developments,
patent or proprietary rights, government regulation and general market conditions may have a
significant impact on the market price of our common stock.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There exist certain mechanisms under the Delaware General Corporation Law and our charter documents
that may delay, defer or prevent a change of control. For instance, under Delaware law, we are
prohibited from engaging in certain business combinations with interested stockholders for a period
of three years after the date of the transaction in which the person became an interested
stockholder unless certain requirements are met, and majority stockholder approval is required for
certain business combination transactions with interested parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Certificate of Incorporation contains a &#147;fair price&#148; provision requiring majority stockholder
approval for certain business combination transactions with interested parties, and this provision
may not be changed without the vote of at least 80% of the outstanding shares of our voting stock.
Other mechanisms in our charter documents may also delay, defer or prevent a change of control.
For instance, our Certificate of Incorporation provides that our Board of Directors has authority
to issue series of our preferred stock with such voting rights
</DIV>




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</DIV>

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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>RISK FACTORS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and other powers as the Board of Directors may determine. Furthermore, we have a classified board
of directors, which means that our directors are divided into three classes that are elected to
three-year terms on a staggered basis. Since the three-year terms of each class overlap the terms
of the other classes of directors, the entire board of directors cannot be replaced in any one
year. Under Delaware law, directors serving on a classified board may not be removed by
shareholders except for cause. Also, pursuant to the terms of our shareholder rights plan, each
outstanding share of common stock has one attached right. The rights will cause substantial
dilution of the ownership of a person or group that attempts to acquire us on terms not approved by
the Board of Directors and may have the effect of deterring hostile takeover attempts. The effect
of these anti-takeover provisions may be to deter business combination transactions not approved by
our Board of Directors, including acquisitions that may offer a premium over the market price to
some or all stockholders.
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1B.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>UNRESOLVED STAFF COMMENTS</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None.
</DIV>




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

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

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 2.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>PROPERTIES</B></TD>
</TR>
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table contains a listing of our current property locations:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Ownership or</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Approximate</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Lease</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="CENTER">Location of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Square</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Expiration</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="CENTER">Property</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Use of Facility</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Footage</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Minnetonka, MN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research &#038; development, sales, sales support,
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">130,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Owned</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Corporate headquarters)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">marketing and administration</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- 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>
    <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">Eden Prairie, MN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing and warehousing
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">58,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Owned</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Minneapolis, MN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Engineering services
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">16,837</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November&nbsp;2016</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>
    <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">Waltham, MA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Research &#038; development, sales and sales support
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6,836</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;2015</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>
    <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">Austin, TX
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support, marketing
and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6,563</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;2014</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>
    <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">Davis, CA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support, research &#038; development
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">24,000</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;2012</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lindon, UT
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing, research &#038; development
and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">11,986</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;2015</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>
    <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">Herndon, VA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing and tech support
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,416</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;2011</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>
    <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">Hong Kong, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,061</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;2013</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>
    <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">Beijing, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,372</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November&nbsp;2012</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shanghai, China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,251</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2012</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dortmund, Germany
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support, marketing and
administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">21,485</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;2013</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>
    <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">Breisach, Germany
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, marketing, research &#038; development,
manufacturing,
warehousing and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,748</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;2013</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>
    <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">Neuilly sur Seine, France
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales and marketing
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,895</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January&nbsp;2015</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>
    <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">Ilkley, UK
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, sales support, marketing and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5,475</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">October&nbsp;2015</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>
    <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">Logrono, Spain
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, research &#038; development and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,228</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January&nbsp;2017</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tokyo, Japan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,371</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">November&nbsp;2011</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>
    <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">Bangalore, India
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sales, research &#038; development and administration
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">9,189</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;2014</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the above locations, we perform research and development activities in various
other locations in the United States and sales activities in various other locations in Europe and
Asia which are not deemed to be principal locations and which are not listed above. We believe
that our facilities are adequate for our needs. In February&nbsp;2008, we sold our facility in
Dortmund, Germany and leased back approximately 40% of the property for a period of five years,
with a renewal option for an additional five years.
</DIV>




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





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

<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>LEGAL PROCEEDINGS</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Initial Public Offering Securities Litigation</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 our subsidiary NetSilicon, Inc. and approximately 300 other public
companies. We acquired Net Silicon, Inc. on February&nbsp;13, 2002. The complaint names us as a
defendant along with NetSilicon, certain of its officers and certain underwriters involved in
NetSilicon&#146;s IPO, among numerous others, and asserts, among other things, that NetSilicon&#146;s IPO
prospectus and registration statement violated federal securities laws because they contained
material misrepresentations and/or omissions regarding the conduct of NetSilicon&#146;s IPO underwriters
in allocating shares in NetSilicon&#146;s IPO to the underwriters&#146; customers. We believe that the
claims against the NetSilicon defendants are without merit and have defended the litigation
vigorously. Pursuant to a stipulation between the parties, the two named officers were dismissed
from the lawsuit, without prejudice, on October&nbsp;9, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As previously disclosed, the parties advised the District Court on February&nbsp;25, 2009 that they had
reached an agreement-in-principle to settle the litigation in its entirety. A stipulation of
settlement was filed with the District Court on April&nbsp;2, 2009. On June&nbsp;9, 2009, the District Court
preliminarily approved the proposed global settlement. Notice was provided to the class, and a
settlement fairness hearing, at which members of the class had an opportunity to object to the
proposed settlement, was held on September&nbsp;10, 2009. On October&nbsp;6, 2009, the District Court issued
an order granting final approval to the settlement. Several objectors have since appealed the
order approving the settlement, and those appeals remain pending.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the settlement, our insurers are to pay the full amount of settlement share allocated to us,
and we would bear no financial liability beyond our deductible of $250,000. While there can be no
guarantee as to the ultimate outcome of this pending lawsuit, we expect that our liability
insurance will be adequate to cover any potential unfavorable outcome, less the applicable
deductible amount of $250,000 per claim. As of September&nbsp;30, 2010, we have an accrued liability
for the anticipated settlement of $300,000 which we believe is adequate and reflects the amount of
loss that is probable and a receivable related to the insurance proceeds of $50,000, which
represents the anticipated settlement of $300,000 less our $250,000 deductible. In the event we
should have losses that exceed the limits of the liability insurance, such losses could have a
material adverse effect on our business and our consolidated results of operations or financial
condition.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;18, 2010 and June&nbsp;24, 2010, respectively, two shareholders filed derivative actions against
our directors, our former Chief Financial Officer, and another executive officer, in the Hennepin
County District Court, State of Minnesota, in Minneapolis. Digi also was named as a nominal
defendant in the actions. The complaints alleged that the individual defendants caused us to
operate in countries with dubious business practices without having internal controls or an
accounting system that were adequate to ensure that we did not violate the Foreign Corrupt
Practices Act. The complaints alleged causes of action against the individual defendants for (1)
breach of fiduciary duty, (2)&nbsp;waste of corporate assets, and (3)&nbsp;unjust enrichment. The complaints
sought to recover, purportedly on our behalf, unspecified damages, equitable relief, attorneys&#146;
fees, and costs of litigation. On August&nbsp;2, 2010, we filed a motion to dismiss these lawsuits. On
August&nbsp;16, 2010, the derivative actions were dismissed without prejudice.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;11, 2010, SIPCO, LLC filed a patent infringement lawsuit against Digi in federal court in
the Eastern District of Texas. The lawsuit included allegations against Digi and five other
companies pertaining to the infringement of SIPCO&#146;s patents by wireless mesh networking products.
The lawsuit seeks monetary and non-monetary relief. We cannot predict the outcome of this matter
at this time or whether it will have a materially adverse impact on our business prospects and our
consolidated financial condition, results of operations or cash flow.
</DIV>




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

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

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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>LEGAL PROCEEDINGS (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the matters discussed above, in the normal course of business, we are subject to
various claims and litigation, including patent infringement and intellectual property claims. Our
management expects that these various claims and litigation will not have a material adverse effect
on our consolidated results of operations or financial condition.
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>

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

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

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

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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Common Stock trades under the symbol DGII. Since July&nbsp;3, 2006, our Common Stock has traded on
the NASDAQ Global Select Market tier of the NASDAQ Stock Market LLC and prior to that time was
traded on the NASDAQ National Market tier. On November&nbsp;23, 2010, the number of holders of our
Common Stock was approximately 8,761 consisting of 180 record holders and approximately 8,581
stockholders whose stock is held by a bank, broker or other nominee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">High and low sale prices for each quarter during the years ended September&nbsp;30, 2010 and 2009, as
reported on the NASDAQ Stock Market LLC, were as follows:
</DIV>


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

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">First</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Second</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Third</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Fourth</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.29</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">First</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Second</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Third</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Fourth</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.11</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We did not repurchase any of our equity securities in the fourth quarter or fiscal year ended
September&nbsp;30, 2010. Of the 1,500,000 shares authorized to be repurchased, 135,638 shares remained
available for repurchase at September&nbsp;30, 2010.
</DIV>




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

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

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




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

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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The graph below compares the total cumulative stockholders&#146; return on our Common Stock for the
period from the close of the Nasdaq Stock Market &#151; U.S. Companies on September&nbsp;30, 2005 to
September&nbsp;30, 2010, the last day of fiscal 2010, with the total cumulative return on the CRSP Total
Return Index for the Nasdaq Stock Market &#151; U.S. Companies (the &#147;CRSP Index&#148;) and the CRSP Index
for Nasdaq Telecommunications Stocks (the &#147;Peer Index&#148;) over the same period. We have determined
that our line of business is mostly comparable to those companies in the Peer Index. The index
level for the graph and table was set to $100 on September&nbsp;30, 2005, for our Common Stock, the CRSP
Index and the Peer Index and assumes the reinvestment of all dividends.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="c61561c6156101.gif" alt="(PERFORMANCE GRAPH)">
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY05</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY06</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY07</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY08</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY09</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>FY010</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Digi International Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CRSP Index</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89.24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peer Index</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.14</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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

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

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

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 6.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>SELECTED FINANCIAL DATA</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(In thousands except per common share amounts and number of employees)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="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 nowrap align="left" style="border-bottom: 0px solid #000000">For the fiscal years ended September 30</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">144,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">92,209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">81,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">77,505</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,591</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,861</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restructuring (benefit)&nbsp;costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquired in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,223</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income, net (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,044</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,267</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision (4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,154</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,113</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share, basic:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance sheet data as of September&nbsp;30:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Working capital (total current assets less
total current liabilities)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">122,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">106,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">115,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">83,341</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">266,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">258,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">271,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">251,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">225,321</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">725</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">240,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">229,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">231,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">222,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">193,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Book value per common share (stockholders&#146; equity
divided by outstanding shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #ffffff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of employees as of September 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549</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>Acquisitions provided the following net sales during the year of acquisition: MobiApps in fiscal 2009 of $0.4&nbsp;million, Sarian and
Spectrum in fiscal 2008 of $6.5&nbsp;million and MaxStream in fiscal 2006 of $3.2&nbsp;million.</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Included in general and administration expense in fiscal 2010 is $1.4&nbsp;million ($0.9&nbsp;million after tax) of investigation and
remediation expenses (see Note 19 to our Consolidated Financial Statements).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Included in total other income, net is an other-than-temporary impairment charge of $1.0&nbsp;million ($0.7&nbsp;million after tax) recorded
during fiscal 2008 on an investment in a bond issued by Lehman Brothers (see Note 6 to our Consolidated Financial Statements).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>In fiscal 2010, 2009 and 2008, we recorded net discrete tax benefits of $2.3&nbsp;million, $1.2&nbsp;million and $0.5&nbsp;million, respectively (see
Note 10 to our Consolidated Financial Statements). In fiscal 2007 and 2006, we reversed income tax reserves of $4.3&nbsp;million and
$1.6&nbsp;million, respectively, primarily due to the closing of a German tax audit and the statutory closing of a prior U.S. federal and
state tax year and other discrete tax benefits for fiscal 2007 and the settlement of tax audits with the French government in fiscal 2006.</TD>
</TR>

</TABLE>


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

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

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


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




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

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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We operate in the communications technology industry, which is characterized by rapid technological
advances and evolving industry standards. The market can be significantly affected by new product
introductions and marketing activities of industry participants. We compete for customers on the
basis of existing and planned product features, service capabilities, company reputation, brand
recognition, technical support, relationships with partners, quality and reliability, product
development capabilities, price and availability. We help customers connect, monitor, and control
local or remote electronic devices over a network, via the Internet or via satellite.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We experienced an increase in both revenue and profitability in fiscal 2010 compared to the prior
fiscal year as we partially recovered from the domestic economic downturn and benefited from
actions taken in fiscal 2009 to position ourselves for growth. Our business was negatively
impacted by the effects of the severe downturn in the economy in fiscal 2009, and we experienced a
reduction in demand for our products in all geographic locations. In response to the depressed
economic conditions, we put in place a restructuring plan that included various cost reduction
actions. We also reduced our investment in lower growth product lines while increasing our
investment in wireless products and solutions that include hardware, software and services. These
actions allowed us to reduce our profit breakeven point and remain profitable despite the negative
economic conditions that existed throughout fiscal 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales were $182.5&nbsp;million for fiscal 2010 compared to $165.9&nbsp;million in fiscal 2009, an
increase of $16.6&nbsp;million, or 10.0%. Our wireless product net sales grew from $56.2&nbsp;million, or
33.9% of net sales, in fiscal 2009 to $66.4&nbsp;million, or 36.3% of net sales, in fiscal 2010, an
increase of 18.0%. We expect continued strength in wireless products net sales resulting from
large customer opportunities for our wireless solutions, primarily in the Smart Grid, fleet
management and medical markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gross profit increased by $10.9&nbsp;million, or 13.5% in fiscal 2010. Gross margin improved from 49.0%
for the fiscal year ended September&nbsp;30, 2009 to 50.5% for the fiscal year ended September&nbsp;30, 2010.
The business restructuring discussed above contributed to the improvement in our gross margin, in
addition to other cost reduction initiatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total operating expenses were $82.3&nbsp;million in fiscal 2010 compared to $78.2&nbsp;million in fiscal
2009, an increase of $4.1&nbsp;million, or 5.2%. We suspended our non-sales incentive compensation
program for fiscal 2009, for both executive management as well as a large part of the employee
base. This program was reinstated at a reduced level for fiscal 2010. We also reduced our sales
commission program in the last half of fiscal 2009 and we fully restored the program in fiscal
2010. Also, during the last six months of fiscal 2010, we incurred $1.4&nbsp;million of expense related
to the investigation and remediation that is discussed in Note 19 to our consolidated financial
statements.
</DIV>





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

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

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




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

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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net income was $8.9&nbsp;million, or 4.9% of net sales, in fiscal 2010 compared to $4.1&nbsp;million, or 2.5%
of net sales in fiscal 2009. Net income during fiscal 2010 benefited by $2.3&nbsp;million, resulting
from the reversal of tax reserves associated with the statutory closing of a prior tax year and the
conclusion of an audit of prior tax years. Net income during fiscal 2009 benefited by $1.2
million, resulting from the reversal of tax reserves associated with the extension of the research
and development credit, the resolution of certain state tax matters, and the closing of a prior tax
year.
</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 from our Consolidated Statements of Operations,
expressed as a percentage of net sales and as a percentage of change from year-to-year for the
years indicated.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
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    <TD width="5%">&nbsp;</TD>
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    <TD width="1%">&nbsp;</TD>
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    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">% Increase (decrease)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2009</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">compared</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">compared</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">($ in thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">to 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">to 2008</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">$</TD>
    <TD align="right">182,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165,928</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">185,056</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">10.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10.3</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">86,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.5</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>
    <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">92,209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.3</TD>
    <TD nowrap>)</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">27,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.4</TD>
    <TD nowrap>)</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">17,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,035</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">22.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restructuring (benefit)&nbsp;costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(124.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/M</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">In-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,900</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">N/M</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">9,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(80.8</TD>
    <TD nowrap>)</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">566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(53.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(58.2</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: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(77.4</TD>
    <TD nowrap>)</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">1,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">693.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(97.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">119.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(66.9</TD>
    <TD nowrap>)%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">N/M means not meaningful
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales were $182.5&nbsp;million in fiscal 2010 compared to $165.9&nbsp;million in fiscal 2009, an increase
of $16.6&nbsp;million or 10.0%, primarily due to an increase of $26.8&nbsp;million in the net sales of
modules, cellular products, serial servers, wireless communication adaptors, USB products,
engineering design services and satellite-related products. This was partially offset by a
decrease of $4.9&nbsp;million in net sales of products included in our product portfolio resulting from
the Sarian acquisition which were higher in fiscal 2009, primarily due to a large sale to a legacy
customer, and a decrease of $5.3&nbsp;million in net sales due to large sales of a discontinued chip set
in fiscal 2009. The increase in net sales in fiscal 2010 compared to fiscal 2009 is primarily
driven by increased volume and demand rather than pricing changes. We did not experience a
material change in revenue due to pricing. As we continue to focus on growing our wireless sales,
our wireless product net sales grew from $56.2&nbsp;million, or 33.9% of net sales, in fiscal 2009, to
$66.4&nbsp;million, or 36.3% of net sales, in fiscal 2010, or an increase of 18.0%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales were $165.9&nbsp;million in fiscal 2009 compared to $185.1&nbsp;million in fiscal 2008, a decrease
of $19.2&nbsp;million or 10.3%. Revenue decreased primarily due to weakened economic conditions and
changes in product
</DIV>



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




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


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">mix. Net sales in fiscal 2009 and 2008 included $20.7&nbsp;million and $6.5&nbsp;million of net sales from
Sarian and Spectrum products, respectively. Fiscal 2009 net sales also included $0.4&nbsp;million
attributable to MobiApps which was acquired on June&nbsp;8, 2009. Fiscal 2008 net sales also included
$6.5&nbsp;million of net sales from Sarian and Spectrum from their dates of acquisition. Net sales from
all other product lines decreased by $33.8&nbsp;million, or 18.9%, during fiscal 2009 as compared to
fiscal 2008, primarily due to weakened economic conditions, except for increases in net sales of
cellular, wireless communication adapters and chips and software.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Fluctuation in foreign currency rates compared to the prior year&#146;s rates had an unfavorable impact
on net sales of $0.3&nbsp;million in fiscal 2010 and $5.9&nbsp;million in fiscal 2009 and a favorable impact
on net sales of $2.2&nbsp;million in fiscal 2008.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents our revenue by product category:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Net Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">% of Net Sales</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">($ in millions)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">$</TD>
    <TD align="right">100.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">98.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">54.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">55.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">53.2</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">82.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">45.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">45.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">46.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Non-embedded products net sales increased $8.9&nbsp;million, or 9.7%, in fiscal 2010 compared to fiscal
2009. The increase was mostly due to a $13.8&nbsp;million increase in net sales of cellular products,
serial servers, wireless communication adaptors and USB products, offset by a decrease of $4.9
million in net sales of products included in our product portfolio resulting from the Sarian
acquisition which were higher in fiscal 2009 primarily due to a large sale to a legacy customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Non-embedded products net sales decreased $7.3&nbsp;million, or 7.3%, in fiscal 2009 compared to fiscal
2008 due mostly to decreases in sales of serial cards, serial servers and USB connected products,
partially offset by increases in cellular and wireless communication adapters. Non-embedded net
sales related to Sarian branded products were $16.2&nbsp;million in fiscal 2009 compared to $5.7&nbsp;million
in fiscal 2008, which included five months of Sarian net sales from the date of acquisition.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Embedded products net sales increased $7.7&nbsp;million, or 10.4%, in fiscal 2010 compared to fiscal
2009. The increase was primarily due to a $13.0&nbsp;million increase in net sales of modules and
satellite-related products, partially offset by a decrease of $5.3&nbsp;million primarily related to
large sales of a discontinued chip set in fiscal 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Embedded products net sales decreased $11.9&nbsp;million, or 13.8%, in fiscal 2009 compared to fiscal
2008 due mostly to decreases of modules and network interface cards, partially offset by an
increase in chips and software. Embedded net sales in fiscal 2009 also include incremental net
sales of $3.8&nbsp;million from Spectrum design services.
</DIV>




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

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

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




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

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Net Sales by Distribution Channel</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents our revenue by distribution channel:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Net Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">% of Net Sales</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">($ in millions)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Direct / OEM channel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">78.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">87.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">36.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">47.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">47.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distribution channel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">63.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">52.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">52.7</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 nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2010, net sales in the Distribution channel increased by $28.9&nbsp;million, or 33%
compared to net sales in fiscal 2009. Net sales in fiscal 2010 in the Direct / OEM channel
decreased by $12.3&nbsp;million, or 15.7% compared to the prior fiscal year. The increase in net sales
in the Distribution channel compared to the Direct / OEM channel is
primarily due to fulfillment of customer orders for wireless products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The decreases in net sales in both the Direct / OEM and the Distribution channels during fiscal
2009 compared to fiscal 2008 primarily resulted from a weakened economy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We continued to focus on maintaining our channel strategy, which includes employing additional
channel partners and releasing complementary products.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenue by geographic location of our customers is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Net Sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">% of Net Sales</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">($ in millions)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">North America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">107.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">90.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">107.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">58.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">54.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">58.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe, Middle East &#038; Africa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">26.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">33.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">28.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asian countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">12.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Latin America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.8</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px SOLID #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales in fiscal 2010 increased $16.6&nbsp;million over fiscal 2009 as the U.S. economy
partially recovered from the domestic economic downturn. International net sales remained the same
and were $75.2&nbsp;million, or 41.2% of net sales, in fiscal 2010, compared to $75.2&nbsp;million, or 45.3%
of net sales, in fiscal 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales in fiscal 2010 for North America increased $16.6&nbsp;million due to an increase in
non-embedded products of $11.8&nbsp;million and embedded products of $4.8&nbsp;million. Net sales in fiscal
2009 as compared to fiscal 2008 decreased $20.5&nbsp;million in North America, partially offset by
incremental revenue of $3.8&nbsp;million from the Spectrum acquisition in July&nbsp;2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net sales in Europe, Middle East, and Africa (&#147;EMEA&#148;) decreased $8.3&nbsp;million from fiscal 2009 to
fiscal 2010 as fiscal 2009 included large sales of a discontinued chip set and a large sale to a
legacy customer of Sarian. The increase in net sales in EMEA during fiscal 2009 and 2008 is
primarily due to the acquisition of Sarian in April&nbsp;2008, which provided revenue of $16.2&nbsp;million
and $5.7&nbsp;million, respectively.
</DIV>


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

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

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue for the Latin America and Asian countries increased by $8.3&nbsp;million in fiscal 2010 compared
to fiscal 2009, and revenue decreased by $5.6&nbsp;million in fiscal 2009 compared to fiscal 2008. The
increase in revenue for fiscal 2010 for both Latin America and Asian countries was due to an
increase of $4.9&nbsp;million of embedded products and $3.4&nbsp;million of non-embedded products. Also in
fiscal 2010, we recorded a full year of net sales related to the MobiApps acquisition compared to
three months of net sales in fiscal 2009. The decrease in revenue for fiscal 2009 compared to
fiscal 2008 for Latin America was primarily due to a reduction in net sales of non-embedded
products and for Asian countries was due to a reduction in net sales of both embedded and
non-embedded products primarily resulting from the global economic conditions in both regions.
MobiApps revenue of $0.3&nbsp;million from date of acquisition of June&nbsp;2009 is included in fiscal 2009
Asian countries revenue.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2010 compared to 2009</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gross profit was $92.2&nbsp;million and $81.3&nbsp;million in fiscal 2010 and 2009, respectively, an increase
of $10.9&nbsp;million, or 13.5%. The gross margin for fiscal 2010 was 50.5% compared to 49.0% in fiscal
2009. Gross margin increased 2.1% primarily due to a reduction of costs as a result of the
business restructuring in fiscal 2009 and other cost reduction initiatives and also increased 0.3%
related to a reduction in amortization of purchased and core technology as some technology is fully
amortized. This was partially offset by a 0.9% decrease in gross margin due to unfavorable product
mix primarily related to cellular and certain embedded products. Amortization of purchased and
core technology was $4.1&nbsp;million or 2.2% of net sales in fiscal 2010 as compared to $4.2&nbsp;million or
2.5% of net sales in fiscal 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2009 Compared to 2008</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gross margin for fiscal 2009 was 49.0% compared to 52.9% for 2008. The decrease in gross margin is
primarily a result of product and customer mix changes as we had a large sale to a legacy customer
which generated a lower gross margin. The gross margin also decreased due to an increase in the
amortization of purchased and core technology due to the acquisitions of Sarian, Spectrum and
MobiApps. Amortization of purchased and core technology was $4.2&nbsp;million or 2.5% of net sales in
fiscal 2009 as compared to $4.1&nbsp;million or 2.2% of net sales in fiscal 2008.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2010 Compared to 2009</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating expenses were $82.3&nbsp;million in fiscal 2010, an increase of $4.1&nbsp;million or 5.2%, compared
to $78.2&nbsp;million in fiscal 2009. Compensation-related expenses, including salaries, incentive
compensation, commissions and stock-based compensation increased $1.8&nbsp;million as we fully restored
the sales commission program and partially reinstated our non-sales incentive compensation program
for fiscal 2010. We also incurred professional fees of $1.4&nbsp;million related to the investigation
and remediation that is discussed in Note 19 to our consolidated financial statements and
incremental ongoing expenses related to the fiscal 2009 MobiApps acquisition of $1.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales and marketing expenses were $37.0&nbsp;million in fiscal 2010, an increase of $1.7&nbsp;million or
4.8%, compared to $35.3&nbsp;million in fiscal 2009. The increase was due to an increase of $1.0
million in commission expense, $0.4&nbsp;million in incremental expenses for MobiApps and $0.3&nbsp;million
of other various sales and marketing expenses.
</DIV>




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

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

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expenses were $27.8&nbsp;million in fiscal 2010, an increase of $1.4&nbsp;million or
5.5%, compared to $26.4&nbsp;million in fiscal 2009. The increase was due to an increase of $0.9
million in professional services, contract labor and certification testing, $0.7&nbsp;million in
incremental expenses for MobiApps, and $0.4&nbsp;million of compensation-related expenses, offset by a
net reduction of $0.6&nbsp;million of expense primarily related to a development project that was
completed in fiscal 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">General and administrative expenses were $17.9&nbsp;million in fiscal 2010, an increase of $3.4&nbsp;million
or 22.9%, compared to $14.5&nbsp;million in fiscal 2009. General and administrative expenses increased
by $2.0&nbsp;million due to increased professional fees which includes $1.4&nbsp;million of investigation and
remediation fees (see Note 19 to our Consolidated Financial Statements). In addition, the
incremental expenses for MobiApps increased general and administrative expenses by $0.5&nbsp;million,
compensation-related expenses increased by $0.3&nbsp;million and other miscellaneous general and
administrative expenses increased by $0.6&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2009 Compared to 2008</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating expenses were $78.2&nbsp;million in fiscal 2009, a decrease of $3.7&nbsp;million or 4.5%, compared
to $81.9&nbsp;million in fiscal 2008. Compensation-related expenses, including salaries, incentive
compensation and stock-based compensation, decreased by $3.2&nbsp;million in fiscal 2009 as compared to
fiscal 2008 due to the suspension of our non-sales incentive program for fiscal 2009 and a
reduction of our sales commission program in the last half of fiscal 2009 as well as a reduction in
the number of employees. Incremental operating expenses resulting from the acquisitions of Sarian,
Spectrum and MobiApps were $4.4&nbsp;million. We recorded a charge of $1.9&nbsp;million for in-process
research and development incurred in 2008 resulting from the Sarian acquisition. On April&nbsp;23,
2009, we announced a restructuring initiative that resulted in a restructuring charge of $2.0
million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales and marketing expenses were $35.3&nbsp;million in fiscal 2009, a decrease of $1.6&nbsp;million or 4.3%,
compared to $36.9&nbsp;million in fiscal 2008. Sales and marketing expenses decreased by $0.9&nbsp;million
for compensation-related expenses, $1.2&nbsp;million for advertising and marketing literature, $0.5
million for reduced travel and entertainment and by $0.3&nbsp;million for miscellaneous other sales and
marketing expenses. This was partially offset by incremental expenses related to Sarian, Spectrum
and MobiApps which increased sales and marketing expenses by $1.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development expenses were $26.4&nbsp;million in fiscal 2009, a decrease of $0.7&nbsp;million or
2.4%, compared to $27.1&nbsp;million in fiscal 2008. Research and development expenses decreased by
$1.2&nbsp;million for compensation-related expenses, $0.3&nbsp;million for product certifications and $0.5
million for other research and development expenses. This was partially offset by incremental
expenses for Sarian, Spectrum and MobiApps which increased research and development expenses by
$1.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">General and administrative expenses were $14.5&nbsp;million in fiscal 2009, a decrease of $1.5&nbsp;million
or 9.2%, compared to 16.0&nbsp;million in fiscal 2008. The reduction in general and administrative
expenses were due to decreases of $1.1&nbsp;million for compensation-related expenses, $0.6&nbsp;million for
professional fees, $0.5&nbsp;million for amortization and depreciation, $0.6&nbsp;million for bad debt
expense and a $0.5&nbsp;million decrease in other general and administrative expenses. This was
partially offset by incremental expenses of $1.8&nbsp;million due to Sarian, Spectrum and MobiApps.
</DIV>


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

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

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;23, 2009 we announced a business restructuring to increase our focus on wireless
products and solutions that include hardware, software and services. The restructuring
included the closing of an engineering facility in Long Beach, California, and the relocation
and consolidation of the manufacturing facility in Davis, California to our Minnetonka,
Minnesota headquarters. We paid a lease cancellation fee for one of the leased facilities in
Davis and had vacated the facility as of September&nbsp;30, 2009. We continue to maintain
non-manufacturing activities at the remaining leased facility in Davis, California. As a
result of these initiatives, during the third quarter of fiscal 2009 we recorded a $2.0
million charge, which consisted of $1.8&nbsp;million for employee termination costs for 86
positions and $0.2&nbsp;million for contract termination fees and other relocation costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All 86 positions were vacated as of September&nbsp;30, 2009. The employee termination costs
included severance and the associated costs of continued medical benefits and outplacement
services. The other restructuring expenses included contract termination fees for non-renewal
of lease terms relating to one of the facilities in Davis, California and relocation expenses
for employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2010, we recorded an additional $0.1&nbsp;million for an additional six months of
continued medical benefits as a result of new healthcare legislation passed in December&nbsp;2009
related to the aforementioned restructuring. Also during fiscal 2010 we reversed $0.5&nbsp;million
of the restructuring accrual since costs associated with continued medical benefits and
relocation were lower than expected.
</DIV>


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


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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;28, 2008, we acquired Sarian Systems, Ltd. (&#147;Sarian&#148;). Prior to the acquisition,
Sarian was a privately held corporation. Sarian is located in the United Kingdom and is a
leader in the European wireless router market. The total purchase price of $30.9&nbsp;million was
for all of the outstanding ordinary shares of Sarian.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At the time of acquisition, Sarian had development projects in process associated with the IPV6,
Gate Array and VPN technologies. We estimated that $1.9&nbsp;million of the purchase price represented
the fair value of acquired in-process research and development related to the products listed below
(in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IPV6</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gate Array</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">VPN technologies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These products were under development, had a measurable percentage completed and a documented
expected life, had not yet reached technological feasibility, and had no alternative future uses.
This amount was expensed as a non-deductible tax charge upon consummation of the acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of the acquired development projects were completed in fiscal 2009.
</DIV>


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

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

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




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

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2010 Compared to 2009</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total other income, net was $0.6&nbsp;million in fiscal 2010, a decrease of $0.6&nbsp;million compared to
$1.2&nbsp;million in fiscal 2009. We realized interest income on marketable securities and cash and
cash equivalents of $0.4&nbsp;million in fiscal 2010 compared to $1.4&nbsp;million in fiscal 2009. Although
our average investment balance during fiscal 2010 was $69.0&nbsp;million compared to $57.6&nbsp;million in
fiscal 2009, the decrease in interest income was primarily due to a lower than average interest
rate as we earned an average interest rate of 0.5% during fiscal 2010 compared to 2.4% during
fiscal 2009. Interest expense was $0.1&nbsp;million in fiscal 2010 as compared to $0.3&nbsp;million in
fiscal 2009 as we made one of the deferred payments during fiscal 2010 for the Spectrum
acquisition. Other income, net also increased $0.3&nbsp;million related to a net increase in foreign
currency transaction gains in fiscal 2010 compared to fiscal 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2009 Compared to 2008</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other income, net was $1.2&nbsp;million in fiscal 2009, a decrease of $1.7&nbsp;million compared to $2.9
million in fiscal 2008. During fiscal 2009, we realized $1.4&nbsp;million of interest income on
marketable securities and cash and cash equivalents compared to $3.6&nbsp;million during fiscal 2008.
The decrease in interest income was due to lower average investment balances and lower average
interest rates. The average investment balance during fiscal 2009 was $57.6&nbsp;million compared to
$77.1&nbsp;million for fiscal 2008. We earned an average interest rate of 2.4% during fiscal 2009
compared to 4.5% for fiscal 2008. Other income, net also decreased $0.4&nbsp;million related to a net
decrease in foreign currency transaction gains in fiscal 2009 compared to fiscal 2008. Further, we
recorded an other-than-temporary impairment charge of $1.0&nbsp;million in fiscal 2008 related to a bond
issued by Lehman Brothers. No additional impairment was recorded in fiscal 2009.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our effective income tax rate was 15.0%, 4.6% and 34.7% for fiscal 2010, 2009 and 2008,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2010, we reversed $2.3&nbsp;million in income tax reserves associated primarily with the
closing of prior tax years through statute expiration and the conclusion of a federal tax audit.
While the statutes of limitations have not expired, U.S. federal income tax returns for the periods
ended September&nbsp;30, 2007 and September&nbsp;30, 2008 have been audited by and settled with the Internal
Revenue Service. The aforementioned income tax benefits resulting from the reversal of income tax
reserves and other discrete tax benefits reduced the effective tax rate by 22&nbsp;percentage points in
fiscal 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2009, we reversed $0.6&nbsp;million in income tax reserves primarily associated with the
statutory closing of a prior U.S. federal and state tax year and settlement of prior liabilities
under amnesty programs. We recorded an additional current discrete tax benefit of $0.5&nbsp;million
resulting from the enactment on October&nbsp;3, 2008 of the retroactive extension of the research and
development tax credit for activity from January&nbsp;1, 2008 to September&nbsp;30, 2008. We also recorded
adjustments to actual for items reported on the tax returns filed for fiscal 2007 and 2008. The
aforementioned income tax benefits resulting from the reversal of income tax reserves and other
discrete tax benefits reduced the effective tax rate by 27&nbsp;percentage points in fiscal 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2008, we reversed $0.3&nbsp;million in income tax reserves primarily associated with the
statutory closing of a prior U.S. federal and state tax year. We recorded an additional $0.2
million of discrete tax benefits as a result of a filing of a prior year tax return and adjustments
to actual for items reported on the tax returns for fiscal 2007.
</DIV>


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

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

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Management believes that during fiscal years 2010, 2009 and 2008, inflation has not had a material
effect on our operations or on our consolidated financial position.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have financed our operations principally with funds generated from operations. We had cash,
cash equivalents and short-term marketable securities of $87.6&nbsp;million, $70.7&nbsp;million and $73.5
million at September&nbsp;30, 2010, 2009 and 2008, respectively. Our working capital was $122.1
million, $106.1&nbsp;million and $112.2&nbsp;million at September&nbsp;30, 2010, 2009 and 2008, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Consolidated Statement of Cash Flow Highlights (in thousands)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,370</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,427</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,564</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash
and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,023</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,335</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">34,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,199</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash provided by operating activities was $16.1&nbsp;million during fiscal 2010 compared
to $15.7&nbsp;million during fiscal 2009, a net increase of $0.4&nbsp;million. This net increase is due
to an increase in net income of $4.9&nbsp;million and a net increase of $0.2&nbsp;million of other
non-cash items, offset by a decrease of $1.0&nbsp;million in deferred income taxes and a $3.7
million decrease due to changes in working capital. Changes in working capital decreased cash
flows by $3.7&nbsp;million primarily due to an $11.9&nbsp;million decrease in accounts receivable as the
receivables balance increased due to higher revenue in September&nbsp;2010 than in September&nbsp;2009.
Inventory levels were approximately the same at September&nbsp;30, 2010 and 2009, however
inventories decreased $3.6&nbsp;million at September&nbsp;30, 2009 compared to 2008. This was offset by
a net increase of $6.0&nbsp;million related to changes in accounts payable and a net increase of
$5.8&nbsp;million related to changes in other assets and accrued expenses. Net cash provided by
operating activities was $15.7&nbsp;million during fiscal 2009 compared to $24.1&nbsp;million for fiscal
2008, a net decrease of $8.4&nbsp;million. This net decrease is primarily due to a decrease in net
income of $8.3&nbsp;million, and decreases of $1.0&nbsp;million related to an other-than-temporary
impairment charge during fiscal 2008, $1.1&nbsp;million in deferred income taxes, and $1.9&nbsp;million
related to an in-process research and development charge in fiscal 2008. This was partially
offset by an increase of $1.1&nbsp;million of other non-cash items and an increase of $3.5&nbsp;million
due to changes in working capital. The changes in working capital increased cash flows by
$3.5&nbsp;million primarily due to increases resulting from changes in accounts receivable and
inventories, partially offset by decreases in accounts payable, income taxes payable
(receivable)&nbsp;and other accrued expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash used by investing activities was $15.2&nbsp;million in fiscal 2010 as compared to net cash
provided by investing activities of $25.3&nbsp;million during fiscal 2009, a net decrease of $40.5
million. Net purchases of marketable securities in fiscal 2010 offset by net settlements of
marketable securities in fiscal 2009 resulted in a net decrease of $41.3&nbsp;million. We used cash of
$3.0&nbsp;million for a deferred payment related to the Spectrum acquisition. In fiscal 2009 we spent
$3.0&nbsp;million related to the acquisition of the assets of MobiApps and reduced our capital
expenditures by $0.8&nbsp;million. Net cash provided by investing activities was $25.3&nbsp;million in
</DIV>


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

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

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">fiscal 2009 as compared to net cash used by investing activities of $22.4&nbsp;million in fiscal 2008,
an increase of $47.7&nbsp;million. The increase is a result of $23.5&nbsp;million of additional net proceeds
of marketable securities. Cash spent on acquisitions and contingent purchase price payments in
fiscal 2008 was $33.2&nbsp;million compared to $3.0&nbsp;million in fiscal 2009. We spent $0.5&nbsp;million less
in fiscal 2009 as compared to fiscal 2008 on capital expenditures. In fiscal 2008 we received $6.9
million relating to the sale of our building in Dortmund, Germany in fiscal 2008 (see Note 12 to
our Consolidated Financial Statements) offset by a deposit of $0.4&nbsp;million in a restricted cash
account related to the leaseback.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash provided by financing activities was $2.6&nbsp;million in fiscal 2010 as compared to net cash
used in financing activities of $5.4&nbsp;million in fiscal 2009, a net increase of $8.0&nbsp;million. We
spent $6.6&nbsp;million related to treasury stock repurchases in fiscal 2009. In fiscal 2010 compared
to fiscal 2009, we received an additional $1.1&nbsp;million in proceeds from the exercise of stock
options and employee stock purchase plan transactions and spent $0.3&nbsp;million less in capital lease
payments. Net cash used in financing activities was $5.4&nbsp;million in fiscal 2009 as compared to
$2.6&nbsp;million in fiscal 2008, a net decrease of $2.9&nbsp;million as a result of a $1.4&nbsp;million decrease
from the exercise of stock options and employee stock purchase plan transactions and $1.5&nbsp;million
of additional cash usage for the repurchase of treasury stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We expect positive cash flows from operations and believe that our current cash, cash equivalents
and marketable securities balances, cash generated from operations and our ability to secure debt
and/or equity financing will be sufficient to fund our business operations for the next twelve
months and beyond.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following summarizes our contractual obligations at September&nbsp;30, 2010:
</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 nowrap align="left">(in thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Total</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">1 year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">1-3 years</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">3-5 years</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Thereafter</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</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">$</TD>
    <TD align="right">7,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred payments on acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total contractual cash obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">243</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 operating lease agreements included above primarily relate to office space. The table
above does not include possible payments for uncertain tax positions. Our reserve for uncertain
tax positions, including accrued interest and penalties, was $2.8&nbsp;million as of September&nbsp;30, 2010.
Due to the nature of the underlying liabilities and the extended time often needed to resolve
income tax uncertainties, we cannot make reliable estimates of the amount or timing of cash
payments that may be required to settle these liabilities.
</DIV>


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2010, we had approximately $75.2&nbsp;million of net sales related to foreign customers including
export sales, of which $27.6&nbsp;million was denominated in foreign currency, predominantly the Euro
and British Pound.
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->37<!-- /Folio -->
</DIV>

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2009 and 2008, we had approximately $75.2&nbsp;million and $76.1&nbsp;million, respectively, of net
sales to foreign customers including export sales, of which $33.4&nbsp;million and $45.7&nbsp;million,
respectively, were denominated in foreign currency, predominantly the Euro and British Pound in
fiscal 2009 and predominantly the Euro in fiscal 2008. In future periods, a significant portion of
sales will continue to be made in Euros and British Pounds.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2008, we acquired Sarian for $30.9&nbsp;million, which was partially financed by an
intercompany loan from both Digi International Inc. for $25.0&nbsp;million and Digi GmbH for $2.9
million. The Digi GmbH intercompany loan for $2.9&nbsp;million was paid in March&nbsp;2009 and the Digi
International Inc. $25.0&nbsp;million loan was converted to capital on October&nbsp;1, 2008. The translation
adjustments related to the $2.9&nbsp;million intercompany loan were recorded in other income, net within
our Consolidated Statements of Operations.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2010, the FASB (Financial Accounting Standards Board) issued an amendment to the
accounting standards that provides guidance on criteria used to define a milestone and determines
when it may be appropriate to apply the milestone method of revenue recognition for research or
development transactions. Consideration that is contingent upon achievement of a milestone can be
recognized in its entirety as revenue in the period in which the milestone is achieved only if the
milestone meets all criteria to be considered substantive. In addition, certain disclosures
related to the milestone method of revenue recognition will be required. We adopted this provision
on October&nbsp;1, 2010. We do not expect this amendment to have a material impact on our consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2009, the FASB issued an amendment to the accounting standards that provides guidance
for identifying separate deliverables in a revenue-generating transaction where multiple
deliverables exist, and for allocating and recognizing revenue based on those separate
deliverables. This guidance is expected to result in more multiple-deliverable arrangements being
separable than under current guidance. This amendment is effective for revenue arrangements
entered into or materially modified in our fiscal year beginning October&nbsp;1, 2010. We adopted this
provision on October&nbsp;1, 2010. We do not expect this amendment to have a material impact on our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2009, the FASB issued an amendment to the accounting standards related to certain
revenue arrangements that include software elements. This standard clarifies the existing
accounting guidance such that tangible products that contain both software and non-software
components that function together to deliver the product&#146;s essential functionality shall be
excluded from the scope of the software revenue recognition accounting standards. Accordingly,
sales of these products may fall within the scope of other revenue recognition accounting standards
or may now be within the scope of this standard and may require an allocation of the arrangement
consideration for each element of the arrangement. This amendment is effective for revenue
arrangements entered into or materially modified in our fiscal year beginning October&nbsp;1, 2010. We
adopted this provision on October&nbsp;1, 2010. We do not expect this amendment to have a material
impact on our consolidated financial statements.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
consolidated financial statements requires us to make
</DIV>




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</DIV>

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




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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, the disclosure of contingent assets and liabilities and the values of purchased assets
and assumed liabilities in acquisitions. We base our estimates on historical experience and
various other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
</DIV>

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


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our revenues are derived primarily from the sale of embedded and non-embedded products to our
distributors and Direct (end-user) / OEM customers, and to a small extent from the sale of software
licenses, fees associated with technical support, training, professional and engineering services
and royalties. We recognize product revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, collectability is reasonably
assured and there are no post-delivery obligations other than warranty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under these criteria, product revenue is generally recognized upon shipment of product to
customers. Sales to authorized domestic distributors and Direct / OEMs are made with certain
rights of return and price adjustment provisions. Estimated reserves for future returns and
pricing adjustments are established by us based on an analysis of historical patterns of returns
and price adjustments as well as an analysis of authorized returns compared to received returns,
current on-hand inventory at distributors, and distribution sales for the current period.
Estimated reserves for future returns and price adjustments are charged against revenues in the
same period as the corresponding sales are recorded. Material differences between the historical
trends used to determine estimated reserves and actual returns and pricing adjustments could result
in a material change to our consolidated results of operations or financial position. We have
applied consistent methodologies for estimating reserves for future returns and pricing adjustments
for all years presented. The reserve for future returns and pricing adjustments was $1.1&nbsp;million
at both September&nbsp;30, 2010 and 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also generate revenue from the sale of software licenses, post-contract customer support, fees
associated with technical support, training, professional and engineering services and royalties.
Revenue recognized resulting from such non-product sales represented 3.3%, 3.0% and 1.2% of net
sales in fiscal 2010, 2009 and 2008, respectively. Our software development tools and development
boards often include multiple elements, including hardware, software licenses, post-contract
customer support, limited training and basic hardware design review. Our customers purchase these
products and services during their product development process in which they use the tools to build
network connectivity into the devices they are manufacturing. Revenue for software licenses,
professional and engineering services and training is recognized upon performance, which includes
delivery of a final product version and acceptance by the customer. Revenues from contracts with
multiple element arrangements are recognized as each element is earned based on the relative fair
value of each element provided the delivered elements have value to customers on a standalone
basis. Amounts allocated to each element are based on its objectively determined fair value, such
as the sales price for the product or service when it is sold separately.
</DIV>


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

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




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

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


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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We regularly monitor and evaluate the realizable value of our marketable securities. When
assessing marketable securities for other-than-temporary declines in value, we consider factors
including how significant the decline in value is as a percentage of the original cost, how long
the market value of the investment has been less than its original cost, the underlying factors
contributing to a decline in the prices of securities in a single asset class, the performance of
the issuer&#146;s stock price in relation to the stock price of its competitors within the industry,
expected market volatility, analyst recommendations, the views of external investment managers, any
news or financial information that has been released specific to the investee and the outlook for
the overall industry in which the issuer operates. If events and circumstances indicate that a
decline in the value of these securities has occurred and is other-than-temporary, we would record
a charge to other income (expense).
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We maintain an allowance for doubtful accounts, which reflects the estimate of losses that may
result from the inability of some of our customers to make required payments. The estimate for the
allowance for doubtful accounts is based on known circumstances regarding collectability of
customer accounts and historical collections experience. If the financial condition of one or more
of our customers were to deteriorate, resulting in an inability to make payments, additional
allowances may be required. Material differences between the historical trends used to estimate
the allowance for doubtful accounts and actual collection experience could result in a material
change to our consolidated results of operations or financial position. The allowance for doubtful
accounts was $0.5&nbsp;million at September&nbsp;30, 2010 and $0.6&nbsp;million at September&nbsp;30, 2009.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories are stated at the lower of cost or fair market value, with cost determined using the
first-in, first-out method. We reduce the carrying value of our inventories for estimated excess
and obsolete inventories equal to the difference between the cost of inventory and its estimated
realizable value based upon assumptions about future product demand and market conditions. Once
the new cost basis is established, the value is not increased with any changes in circumstances
that would indicate an increase after the remeasurement. If actual product demand or market
conditions are less favorable than those projected by management, additional inventory write-downs
may be required that could result in a material change to our consolidated results of operations or
financial position. We have applied consistent methodologies for the net realizable value of
inventories.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill represents the excess of cost over the fair value of identifiable assets acquired.
Goodwill is tested for impairment on an annual basis as of June&nbsp;30, or more frequently if events or
circumstances occur which could indicate impairment. At June&nbsp;30, 2010, our market capitalization
was below the carrying value of our reporting unit. However, our market capitalization plus our
estimated control premium of 35% resulted in a fair value in excess of our carrying value and
therefore no impairment was indicated. In order for our carrying value to equal fair value, we
would have required approximately a 14% control premium. The control premium represents the amount
an investor would pay, over and above market capitalization, in order to obtain a controlling
interest in a company. The estimated control premium was determined by a review of premiums paid
for similar companies over the past five years. At September&nbsp;30, 2010, our market capitalization,
which is an indicator of fair value, continued to be below the carrying value of our reporting
unit; however, including the control premium there continued to be no indication of goodwill
impairment at September&nbsp;30, 2010. In order for our carrying value to equal fair value, we would
have required approximately a 1% control premium.
</DIV>


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

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




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

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


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have unrecognized tax benefits of $2.8&nbsp;million classified as a long-term liability as we do not
expect significant payments to occur over the next 12&nbsp;months. The total amount of unrecognized tax
benefits that if recognized would affect our effective tax rate is $2.2&nbsp;million. We recognize
interest and penalties related to income tax matters in income tax expense.
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, we warrant our products to be free from defects in material and workmanship under
normal use and service. The warranty periods range from one to five years from the date of
receipt. We have the option to repair or replace products we deem defective due to material or
workmanship. Estimated warranty costs are accrued in the period that the related revenue is
recognized based upon an estimated average per unit repair or replacement cost applied to the
estimated number of units under warranty. These estimates are based upon historical warranty
incidents and are evaluated on an ongoing basis to ensure the adequacy of the warranty accrual.
The product warranty accrual was $0.9&nbsp;million at September&nbsp;30, 2010 and $1.0&nbsp;million at September
30, 2009.
</DIV>


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

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



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

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


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

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our exposure to interest rate risk relates primarily to our investment portfolio. We do not use
derivative financial instruments to hedge against interest rate risk.
</DIV>


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2010, the average monthly exchange rate for the Euro to the U.S. Dollar increased by
approximately 0.2% from 1.3547 to 1.3574, the average monthly exchange rate for the British Pound
to the U.S. Dollar increased approximately 0.5% from 1.5517 to 1.5596 and the average monthly
exchange rate for the Japanese Yen to the U.S. Dollar increased by approximately 6.2% from .0105 to
..0112. A 10.0% change from the 2010 average exchange rate for the Euro, British Pound and Yen to
the U.S. Dollar would have resulted in a 1.5% increase or decrease in annual net sales and a 2.0%
increase or decrease in stockholders&#146; equity. The above analysis does not take into consideration
any pricing adjustments we may make in response to changes in the exchange rate.
</DIV>


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Investments are made in accordance with our investment policy and consist of certificates of
deposit, corporate bonds and government bonds. We may have some exposure related to the fair value
of our securities, which could change significantly based on changes in market conditions. If
market conditions deteriorate, we may incur impairment charges for securities in our investment
portfolio.
</DIV>





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

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

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

<DIV align="left">
<A name="112"></A>
</DIV>



<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</B></TD>
</TR>
</TABLE>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Stockholders and Board of Directors of Digi International Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, of cash flows and of stockholders&#146; equity and comprehensive income (loss)
present fairly, in all material respects, the financial position of Digi International Inc. and its
subsidiaries at September&nbsp;30, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended September&nbsp;30, 2010 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index appearing under Item&nbsp;15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
September&nbsp;30, 2010, based on criteria established in Internal Control &#151; Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company&#146;s
management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management&#146;s Report on
<I>Internal Control over Financial Reporting </I>appearing under Item&nbsp;9A. Our responsibility is to
express opinions on these financial statements, on the financial statement schedule, and on the
Company&#146;s internal control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A company&#146;s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company&#146;s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii)&nbsp;provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii)&nbsp;provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company&#146;s assets that could have a material effect on the
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">/s/ PricewaterhouseCoopers LLP<BR>
Minneapolis, Minnesota<BR>
November&nbsp;23, 2010

</DIV>


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



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


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">For the fiscal years ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">$</TD>
    <TD align="right">182,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185,056</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">86,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,096</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of purchased and core technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,091</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,869</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,879</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">27,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,040</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">17,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,035</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restructuring (benefit)&nbsp;costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquired in-process research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,854</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,015</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,579</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">(138</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(174</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of marketable security</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,015</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,915</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="line-height: 3pt"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="line-height: 3pt"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average common shares, basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,659</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="line-height: 3pt"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average common shares, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,242</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>
<!-- /xbrl,op -->







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

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

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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">As of September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</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">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">48,434</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,311</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,032</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,844</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,655</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">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,063</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">16,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,678</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">19,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,877</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">86,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,558</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">677</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">266,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">258,948</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">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,567</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Warranty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">970</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">4,507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,756</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred payment on acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,966</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,534</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">Deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,331</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,893</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred payment on acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,812</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other noncurrent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">792</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 liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,362</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">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">
    <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" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Preferred stock, $.01 par value; 2,000,000 shares authorized; none
issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Common stock, $.01 par value; 60,000,000 shares authorized;
28,666,311 and 28,409,198 shares issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,282</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,708</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,589</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,527</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Treasury stock, at cost, 3,584,215 and 3,708,302 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,218</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,161</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229,586</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 liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">266,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">258,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>
<!-- /xbrl,bs -->






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

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

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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

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


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">For the fiscal years ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to net cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation of property, equipment and improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of identifiable intangible assets and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Bad debt/product return (benefit)&nbsp;provision, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(265</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">308</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventory obsolescence</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Excess tax benefits from stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(80</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(184</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Impairment on marketable security</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,015</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,697</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred income taxes, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,656</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,714</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,624</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquired in-process research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities (net of acquisitions):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,525</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,838</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(891</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,093</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Income taxes (receivable)&nbsp;payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,090</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,561</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,322</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,185</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,596</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,538</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,489</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69,196</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from maturities of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,857</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,954</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property, equipment, improvements and certain
other intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,975</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,873</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,425</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in restricted cash &#151; non-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(392</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Contingent purchase price payments related to acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,315</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred cash payout for acquisition of business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of businesses, net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,986</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(31,853</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Net cash (used in) provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,370</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(361</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Borrowing on note payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payment on note payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of treasury stock</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">(6,576</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,104</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from stock option plan transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,699</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">894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Excess tax benefits from stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Net cash provided by (used in) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,427</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,564</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rates changes on cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,023</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,335</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,199</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,375</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">48,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,176</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental Cash Flows Information:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes paid, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,143</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other non-cash financing and investing items:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred payment liability related to acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equipment acquired under capital lease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The accompanying notes are an integral part of the consolidated financial statements.
</DIV>
<!-- /xbrl,cf -->



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



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


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.<BR>
<!-- xbrl,se -->
CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY AND COMPREHENSIVE INCOME (LOSS)</B><BR>
<!-- xbrl,body -->
(in thousands)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the years ended September&nbsp;30, 2010, 2009 and 2008
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&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">Additional</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">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</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">Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Treasury Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Paid-In</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Retained</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Comprehensive</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Stockholders&#146;</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">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Par Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Income</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Equity</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, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(18,435</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">172,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">222,905</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation
adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,018</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,018</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,333</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cumulative effect from adoption
of FIN 48</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(508</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(508</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee stock purchase issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of treasury stock</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 align="right">471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&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="left">&nbsp;</TD>
    <TD align="right">(5,104</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock upon exercise of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,699</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit realized upon exercise
of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(106</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&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="left">&nbsp;</TD>
    <TD align="right">(106</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,697</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,691</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,897</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">231,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation
adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,622</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,622</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized (loss)&nbsp;gain on
investments
(net of related tax effect of $2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification of gain into net
income
(net of related tax effect of $3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(547</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee stock purchase issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of treasury stock</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 align="right">893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,576</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&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="left">&nbsp;</TD>
    <TD align="right">(6,576</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock upon exercise of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">423</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit realized upon exercise
of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&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="left">&nbsp;</TD>
    <TD align="right">(148</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,518</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,161</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,527</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">229,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation
adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,074</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,074</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gain on investments
(net of related tax effect of $22)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification of gain into net
income
(net of related tax effect of $14)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,879</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee stock purchase issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of stock upon exercise of
stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit realized upon exercise
of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(846</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&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="left">&nbsp;</TD>
    <TD align="right">(846</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,371</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balances, September&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,218</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,589</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">240,556</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<!-- /xbrl,se -->

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



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

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<!-- xbrl,ns -->

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

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


<!-- xbrl,n -->



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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are a worldwide leader in device networking for business and make wireless machine-to-machine
(M2M) connectivity easy. We offer high levels of performance, flexibility and quality, and market
our products through a global network of distributors and resellers, systems integrators and
original equipment manufacturers (OEMs). We are heavily focused on four application markets, and
we offer solution bundles for energy monitoring and management, tank
monitoring and fleet management.
</DIV>


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


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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cash equivalents consist of money market accounts and other highly liquid investments purchased
with an original maturity of three months or less. The carrying amounts approximate fair value due
to the short maturities of these investments.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Marketable securities consist of certificates of deposit, corporate bonds and government
municipal bonds. We changed our policy as of October&nbsp;1, 2008 to account for our marketable
securities as available-for-sale on a prospective basis. Prior to October&nbsp;1, 2008 all
marketable securities purchased were classified as held-to-maturity and were carried at
amortized cost. All marketable securities purchased after October&nbsp;1, 2008 are carried at fair
value with unrealized gains and losses reported as a separate component of stockholders&#146;
equity. We obtain quoted market prices and trading activity for each security, where
available, review the financial solvency of each security issuer and obtain other relevant
information to estimate the fair value for each security in our investment portfolio.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We regularly monitor and evaluate the value of our marketable securities. When assessing
marketable securities for other-than-temporary declines in value, we consider factors including how
significant the decline in value is as a percentage of the original cost, how long the market value
of the investment has been less than its original cost, the underlying factors contributing to a
decline in the prices of securities in a single asset class, the performance of the issuer&#146;s stock
price in relation to the stock price of its competitors within the industry, expected market
volatility, analyst recommendations, the views of external investment managers, any news or
financial information that has been released specific to the investee and the outlook for the
overall industry in which the issuer operates. If events and circumstances indicate that a decline
in the value of a security has occurred and is other-than-temporary, we would record a charge to
other income (expense).
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accounts receivable are stated at the amount we expect to collect, which is net of an allowance for
doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments. The following factors are considered when determining the collectability of
specific customer accounts: customer creditworthiness, past transaction history with the customer,
and changes in customer payment terms or
</DIV>


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

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<!-- xbrl -->

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




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


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


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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">practices. In addition, overall historical collection experience, current economic industry
trends, and a review of the current status of trade accounts receivable are considered when
determining the required allowance for doubtful accounts. Based on our assessment, we provide for
estimated uncollectible amounts through a charge to earnings and a credit to our allowance for
doubtful accounts. Balances that remain outstanding after we have used reasonable collection
efforts are written off through a charge to the allowance for doubtful accounts and a credit to
accounts receivable.
</DIV>


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


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


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET</B>
</DIV>


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


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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Purchased proven technology, license agreements, covenants not to compete and other identifiable
intangible assets are recorded at fair value when acquired in a business acquisition, or at cost
when not purchased in a business acquisition. Purchased in-process research and development costs
(IPR&#038;D) were previously expensed upon consummation of the related business acquisition. Effective
October&nbsp;1, 2009 in-process research and development costs are capitalized according to
authoritative guidance issued by FASB related to business combinations. We have not yet incurred
any capitalized in-process research and development. All other identifiable intangible assets are
amortized on either a straight-line basis over their estimated useful lives of three to thirteen
years or based on the pattern in which the asset is consumed. Useful lives for identifiable
intangible assets are estimated at the time of acquisition based on the periods of time from which
we expect to derive benefits from the identifiable intangible assets. Amortization of purchased
and core technology is presented as a separate component of cost of sales in the Consolidated
Statements of Operations. Amortization of all other acquired identifiable intangible assets is
charged to operating expense as a component of general and administrative expense.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Identifiable intangible assets are reviewed for impairment whenever events or circumstances
indicate that undiscounted expected future cash flows are not sufficient to recover the carrying
value amount. We measure impairment loss by utilizing an undiscounted cash flow valuation
technique using fair values indicated by the income approach. Impairment losses, if any, would be
recorded in the period the impairment is identified. No impairments were identified during fiscal
2010, 2009 or 2008.
</DIV>


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

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<!-- xbrl -->

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




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


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


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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill represents the excess of cost over the fair value of identifiable assets acquired.
Goodwill is tested for impairment on an annual basis as of June&nbsp;30, or more frequently if events or
circumstances occur which could indicate impairment. At June&nbsp;30, 2010, our market capitalization
was below the carrying value of our reporting unit. However, our market capitalization plus our
estimated control premium of 35% resulted in a fair value in excess of our carrying value and
therefore no impairment was indicated. In order for our carrying value to equal fair value, we
would have required approximately a 14% control premium. The control premium represents the amount
an investor would pay over and above market capitalization in order to obtain a controlling
interest in a company. The estimated control premium was determined by a review of premiums paid
for similar companies over the past five years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In order to compute the control premium, three methodologies were used, including (1)&nbsp;analyzing
individual transactions within our industry, (2)&nbsp;analyzing industry-wide data, and (3)&nbsp;analyzing
global transaction data. Individual transactions in the Communication Equipment and Computer &#038;
Peripherals industries were used to find transactions of target companies that operated in similar
markets and shared similar operating characteristics with Digi. Transaction screening criteria
included selection of transactions with the following characteristics:
</DIV>


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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>At least 50&nbsp;percent of a target company&#146;s equity sought by an acquirer,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Target company considered operating (not in bankruptcy),</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Target company had publicly traded stock outstanding at the transaction date, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Transactions announced between June&nbsp;30, 2006 and the valuation date.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In analyzing industry-wide data, transactions in three industries were identified that encompassed
the products offered by us: Office Equipment and Computer Hardware, Communications, and Computer,
Supplies and Services. Finally, control premiums were considered for both domestic and
international transactions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Using the data from the above analyses, an overall range of control premiums was identified as of
the June&nbsp;30, 2009 valuation date and resulted in a concluded range of control premium of 25&nbsp;percent
to 35&nbsp;percent as of June&nbsp;30, 2009. The control premium percentage that was used in estimating the
fair value of our reporting unit was 35&nbsp;percent at our June&nbsp;30, 2009 annual goodwill impairment
assessment. A review of historical control premiums paid indicated that control premiums were
generally higher during economic downturns, when selling prices of target companies were likely
undervalued, and acquirers were willing to pay higher control premiums. We concluded that the high
end of the range of control premiums best represented the amount an investor would pay, over and
above market capitalization, in order to obtain a controlling interest given the current economic
conditions. If we had selected the low end of the range of control premiums, our fair value would
still have exceeded our carrying value for purposes of the annual goodwill impairment assessment at
June&nbsp;30, 2009. Based on our industry knowledge and discussions with an independent third party
valuation firm in June&nbsp;2010, we concluded that the control premium study that was performed in
conjunction with our annual goodwill impairment assessment on June&nbsp;30, 2009 remained valid for June
30, 2010 and that the 35&nbsp;percent control premium used in our prior year&#146;s assessment continued to
best represent the amount an investor would pay, over and above market capitalization, in order to
obtain a controlling interest given the current economic conditions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At September&nbsp;30, 2010, our market capitalization, which is an indicator of fair value, continued to
be below the carrying value of our reporting unit; however, with the control premium there
continued to be no indication of goodwill impairment at September&nbsp;30, 2010. In order for our
carrying value to equal fair value, we would have required approximately a 1% control premium.
</DIV>


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

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<!-- xbrl -->

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




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


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


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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based on our annual goodwill impairment assessment on June&nbsp;30, 2009, we concluded that the fair
value of our reporting unit exceeded the carrying amount and, therefore, no potential goodwill
impairment was indicated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have defined the criteria that will result in additional interim goodwill impairment
testing. If these criteria are met, we will undertake an analysis to determine whether a
goodwill impairment has occurred, which could have a material effect on our consolidated
financial position and results of operations. The evaluation of asset impairment may require
us to make assumptions about future cash flows and revenues. These assumptions require
significant judgment and actual results may differ from assumed or estimated amounts. If
these estimates and assumptions change, we may be required to recognize impairment losses in
the future.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recognize revenue in accordance with authoritative guidance issued by FASB related to revenue
recognition. We reclassified fiscal 2009 and 2008 Spectrum design services revenue from product
sales to non-product sales to conform to the current year presentation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue recognized for product sales was 96.7%, 97.0% and 98.8% in fiscal 2010, 2009 and 2008,
respectively. We recognize product revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, collectability is reasonably
assured and there are no post-delivery obligations, other than warranty. Under these criteria,
product revenue is generally recognized upon shipment of product to customers, including Direct
(end-user) / OEMs and distributors. Sales to authorized domestic distributors and Direct / OEMs
are made with certain rights of return and price adjustment provisions. Estimated reserves for
future returns and pricing adjustments are established by us based on an analysis of historical
patterns of returns and price adjustments as well as an analysis of authorized returns compared to
received returns, current on-hand inventory at distributors, and distribution sales for the current
period. Estimated reserves for future returns and price adjustments are charged against revenues
in the same period as the corresponding sales are recorded.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also generate revenue from the sale of software licenses, post-contract customer support, fees
associated with technical support, training, professional and engineering services, and royalties.
Revenue recognized resulting from such non-product sales represented 3.3%, 3.0%, and 1.2% of net
sales in fiscal 2010, 2009 and 2008, respectively. Our software development tools and development
boards often include multiple elements, including hardware, software licenses, post-contract
customer support, limited training and basic hardware design review. Our customers purchase these
products and services during their product development process in which they use the tools to build
network connectivity into the devices they are manufacturing. Revenue for software licenses,
professional and engineering services and training is recognized upon performance, which includes
delivery of a final product version and acceptance by the customer. For post-contract customer
support and fees associated with technical support, revenue is deferred and recognized over the
life of the contract as service is performed. Royalty revenue is recognized when cash is received
from the customer. Unearned post-contract customer support and unearned nonrecurring engineering
services revenue is included in deferred revenue on the balance sheet.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Research and development costs are expensed when incurred. Research and development costs include
compensation, allocation of corporate costs, depreciation, utilities, professional services and
prototypes. Software development costs are expensed as incurred until the point that technological
feasibility and proven
</DIV>


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

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<!-- xbrl -->

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




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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">marketability of the product are established. To date, the time period between the establishment
of technological feasibility and completion of software development has been short, and no
significant development costs have been incurred during that period. Accordingly, we have not
capitalized any software development costs to date.
</DIV>


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


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


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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table is a reconciliation of the numerators and denominators in the net income per
common share calculations (in thousands, except per common share data):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">Years ended September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>
    <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">Numerator:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,351</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Denominator for basic net income per common
share &#151; weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,659</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Employee stock options and employee stock purchase plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">583</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Denominator for diluted net income per common
share &#151; adjusted weighted average shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,242</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We use the treasury stock method to calculate the weighted-average shares used in the diluted
earnings per share computation. Under the treasury stock method, the proceeds from exercise of an
option, the amount of compensation cost, if any, for future service that we have not yet
recognized, and the amount of estimated tax benefits that would be recorded in paid-in capital, if
any, when the option is exercised are assumed to be used to repurchase shares in the current
period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock options to purchase 2,493,261, 3,109,829 and 2,336,693 common shares at September&nbsp;30, 2010,
2009 and 2008, respectively, were not included in the computation of diluted earnings per common
share because the options&#146; exercise prices were greater than the average market price of common
shares and, therefore, their effect would be antidilutive.
</DIV>


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

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




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


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


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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-based compensation expense represents the cost of employee services received in exchange
for an award of equity instruments based on the grant date fair value of the award. This cost
must be recognized over the period during which an employee is required to provide the service
(usually the vesting period).
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Financial position and results of operations of our international subsidiaries are measured using
local currencies as the functional currency, except for our Singapore location which uses the U.S.
Dollar as its local currency. Assets and liabilities of these operations are translated at the
exchange rates in effect at the end of each reporting period. Statements of operations accounts
are translated at the weighted average rates of exchange prevailing during each reporting period.
Translation adjustments arising from the use of differing currency exchange rates from period to
period are included in accumulated other comprehensive income (loss)&nbsp;in stockholders&#146; equity.
Gains and losses on foreign currency exchange transactions, as well as translation gains or losses
on transactions denominated in currencies other than an entity&#146;s functional currency are reflected
in the statement of operations. Net transaction gains and losses are recorded to other income
(expense)&nbsp;and amounted to $0.3&nbsp;million, $0.1&nbsp;million and $0.5&nbsp;million for fiscal 2010, 2009 and
2008, respectively. We have not implemented a formal hedging strategy to reduce the risk of
foreign currency translation exposures.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>USE OF ESTIMATES AND RISKS AND UNCERTAINTIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The preparation of consolidated financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain prior year amounts have been reclassified to conform to fiscal year 2010 presentation.
These reclassifications had no impact on our consolidated net sales or our consolidated net income.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our comprehensive income (loss)&nbsp;is comprised of net income, foreign currency translation
adjustments and unrealized gains and losses on available-for-sale marketable securities, which are
charged or credited to the accumulated other comprehensive income (loss)&nbsp;account in stockholders&#146;
equity.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2010, the FASB (Financial Accounting Standards Board) issued an amendment to the
accounting standards that provides guidance on criteria used to define a milestone and determines
when it may be appropriate to apply the milestone method of revenue recognition for research or
development transactions. Consideration that is contingent upon achievement of a milestone can be
recognized in its entirety as revenue in the period in which the milestone is achieved only if the
milestone meets all criteria to be considered substantive. In addition, certain disclosures
related to the milestone method of revenue recognition will be required. We adopted this provision
on October&nbsp;1, 2010. We do not expect this amendment to have a material impact on our consolidated
financial statements.
</DIV>


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

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




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


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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2009, the FASB issued an amendment to the accounting standards that provides guidance
for identifying separate deliverables in a revenue-generating transaction where multiple
deliverables exist, and for allocating and recognizing revenue based on those separate
deliverables. This guidance is expected to result in more multiple-deliverable arrangements being
separable than under current guidance. This amendment is effective for revenue arrangements
entered into or materially modified in our fiscal year beginning October&nbsp;1, 2010. We adopted this
provision on October&nbsp;1, 2010. We do not expect this amendment to have a material impact on our
consolidated financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2009, the FASB issued an amendment to the accounting standards related to certain
revenue arrangements that include software elements. This standard clarifies the existing
accounting guidance such that tangible products that contain both software and non-software
components that function together to deliver the product&#146;s essential functionality shall be
excluded from the scope of the software revenue recognition accounting standards. Accordingly,
sales of these products may fall within the scope of other revenue recognition accounting standards
or may now be within the scope of this standard and may require an allocation of the arrangement
consideration for each element of the arrangement. This amendment is effective for revenue
arrangements entered into or materially modified in our fiscal year beginning October&nbsp;1, 2010. We
adopted this provision on October&nbsp;1, 2010. We do not expect this amendment to have a material
impact on our consolidated financial statements.
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. ACQUISITIONS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MobiApps Holdings Private Limited</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;8, 2009, we acquired substantially all the assets of MobiApps Holdings Private Limited
(&#147;MobiApps&#148;), a developer of machine-to-machine (&#147;M2M&#148;) communications technology focusing on
satellite, cellular, and hybrid satellite/cellular solutions. MobiApps has locations in India,
Singapore and in the U.S. Pursuant to the terms of the asset purchase agreements, Digi
International acquired the U.S. assets located in Herndon, Virginia. In addition, we established
Digi Wireless Singapore Pte. Ltd. and Digi m2m Solutions India Private Limited, which acquired the
assets of MobiApps&#146; affiliate companies, located in Singapore and India, respectively. The
acquisition was a cash transaction for $3.0&nbsp;million. At September&nbsp;30, 2010, it has been determined
that certain performance milestones were not achieved; therefore the contingent payment of $0.5
million is not payable.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sarian Systems, Ltd.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;28, 2008, we acquired Sarian Systems, Ltd. (&#147;Sarian&#148;). Prior to the acquisition,
Sarian was a privately held corporation located in the United Kingdom. The total purchase
price of $30.9&nbsp;million was for all of the outstanding ordinary shares of Sarian.
</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 non-deductible goodwill of
$15.4&nbsp;million and a charge of $1.9&nbsp;million for acquired in-process research and development.
We believe that the acquisition resulted in the recognition of goodwill primarily because
Sarian&#146;s wireless IP-based routing capability is highly complementary to our market approach
and significantly expands our wireless offering.
</DIV>


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

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

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




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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following unaudited pro forma condensed consolidated results of operations have been prepared
as if the acquisition of Sarian had occurred as of the beginning of the period presented (in
thousands, except per common share amounts). Pro forma adjustments include amortization of
identifiable intangible assets and the $1.9&nbsp;million charge related to acquired in-process research
and development associated with the Sarian acquisition.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Year ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">September 30, 2008</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">$</TD>
    <TD align="right">192,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,537</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">$</TD>
    <TD align="right">0.45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share, diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.44</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 is not necessarily
indicative of results that would have occurred had the Sarian acquisition occurred as of the
beginning of the period presented above, nor is it necessarily indicative of the results that will
be obtained in the future.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Spectrum Design Solutions, Inc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;23, 2008, we acquired Spectrum Design Solutions, Inc. (&#147;Spectrum&#148;), which is a wholly owned
subsidiary of Digi International Inc. Prior to the acquisition, Spectrum was a privately held
Minneapolis-based corporation and performed wireless design services. The acquisition was a cash
merger for $10.0&nbsp;million of which $4.0&nbsp;million was paid on the acquisition date, $3.0&nbsp;million was
paid in January&nbsp;2010, and the remaining $3.0&nbsp;million will be paid in July&nbsp;2011. The remaining
deferred payment of $3.0&nbsp;million is recorded as a liability on our consolidated balance sheet at
its current net present value of $2.9&nbsp;million, on which interest is accrued up until the time of
payment.
</DIV>


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





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



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


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


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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amortized identifiable intangible assets, net as of September&nbsp;30, 2010 and 2009 are comprised of
the following (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">As of September 30, 2010</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">As of September 30, 2009</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Gross</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Gross</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">carrying</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">carrying</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amortization</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Net</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amount</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amortization</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Net</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 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">$</TD>
    <TD align="right">46,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(38,917</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(34,893</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,690</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">2,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,537</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,464</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">Patents and trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,522</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,536</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,756</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">(604</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96</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">(534</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166</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">17,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,096</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,334</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,273</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(770</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(425</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">616</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(58,446</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(51,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 3px double #000000">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Amortization expense for fiscal years 2010, 2009 and 2008 is as follows (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fiscal year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Total</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,830</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Estimated amortization expense for the next five years is as follows (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fiscal year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Total</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,358</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,467</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,432</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2014</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,784</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2015</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,304</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The changes in the carrying amount of goodwill for fiscal 2010 and 2009 are as follows (in
thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</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">$</TD>
    <TD align="right">86,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86,578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of MobiApps</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,701</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(348</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,721</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, September 30</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">86,558</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 -->56<!-- /Folio -->
</DIV>

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


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


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

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a single operating and reporting segment. Our revenues consist of products that are
in non-embedded and embedded product categories. Non-embedded products are connected
externally to a device or larger system to provide wired or wireless network connectivity or
port expansion, while embedded products are used by a product developer to build an electronic
device in which the product provides processing power, wired Ethernet, or wireless network
connectivity to that device. The products included in the non-embedded product category
include cellular routers, gateways, wireless communication adapters, console and serial
servers, USB connected products and serial cards. The products included in the embedded
product category include modules, chips, software and development tools, design services,
satellite and single-board computers. The following table provides revenue by product
categories (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">$</TD>
    <TD align="right">100,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">98,442</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Embedded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,614</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185,056</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The information in the following table provides revenue by the geographic location of the
customer for the years ended September&nbsp;30, 2010, 2009 and 2008 (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">North America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">107,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">90,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">107,336</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe, Middle East &#038; Africa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,956</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asia countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,672</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Latin America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,092</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">185,056</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net property, equipment and improvements by geographic location 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="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">As of September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International, primarily Europe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,335</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total net property, equipment and improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,255</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our U.S. export sales comprised 34.1%, 32.5% and 34.8% of net sales for the years ended
September&nbsp;30, 2010, 2009 and 2008, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We had one customer whose accounts receivable balance comprised 10.2% of total accounts receivable
at September&nbsp;30, 2009 for which multiple payments were in transit and received within three
business days of September&nbsp;30, 2009. No single customer exceeded 10% of accounts receivable or
sales for any other period presented.
</DIV>


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

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




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


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

<!-- xbrl,body -->
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">As of September 30, (in thousands)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</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">$</TD>
    <TD align="right">24,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,656</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">549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,032</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">$</TD>
    <TD align="right">21,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,359</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">418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">452</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">4,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,808</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,619</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">Property, equipment and improvements, net:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,542</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equipment *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchased software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,848</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,170</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,678</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">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50</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">838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">696</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred gain on building sale &#151; short-term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred income tax liability &#151; current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">721</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">2,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,965</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,756</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

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

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Included in equipment is an immaterial amount under capital leases at September&nbsp;30, 2010.</TD>
</TR>

</TABLE>



<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. MARKETABLE SECURITIES</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our marketable securities consist of certificates of deposit, corporate bonds and government
municipal bonds. Prior to October&nbsp;1, 2008, all marketable securities were classified as
held-to-maturity and carried at amortized cost, except for a bond issued by Lehman Brothers
(the Lehman Brothers Bond), which was carried at expected realizable value due to an
other-than-temporary impairment recorded during the fourth quarter of fiscal 2008. We changed
our policy as of October&nbsp;1, 2008 to account for our marketable securities as
available-for-sale on a prospective basis with unrealized gains and losses reported as a
separate component of stockholders&#146; equity. In addition, we reclassified the Lehman Brothers
Bond as available-for-sale and sold this bond in fiscal 2009 and 2010, as discussed further
below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We analyze our available-for-sale investments for impairment on an ongoing basis. We consider
factors in determining whether an unrealized loss is a temporary loss or an other-than-temporary
loss such as: (a)&nbsp;whether we have the intent to sell the security or (b)&nbsp;whether it is more likely
than not that we will be required to sell the security before its anticipated recovery. We also
consider factors such as the length of time and extent to which
the securities have been in an unrealized loss position and the trend of any unrealized losses.
During the fourth quarter of fiscal 2008, we recorded an other-than-temporary impairment of
$1,014,900 on the Lehman Brothers Bond with a par amount of $1,194,000. The resulting value of
$179,100 for the security became its new cost
</DIV>


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

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




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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">basis as of September&nbsp;30, 2008. This other-than-temporary impairment reflected the estimated
decline in the value of this security precipitated by the bankruptcy of the security&#146;s issuer and
was considered a credit loss and thus would remain in retained earnings. The impairment charge was
recorded as a temporary tax difference as we had sufficient capital gains in the available
carryback years to utilize the capital loss that would be realized when the bond is sold. We sold a
portion of the bond in fiscal 2009. The remaining value of the Lehman Brothers Bond as of September
30, 2009 was $134,100. We sold the remainder of the bond in January&nbsp;2010 for $169,860 and
recognized a gain of $35,760 on this sale during the second quarter of fiscal 2010, reflecting the
difference between the remaining value and the selling price.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We obtain quoted market prices and trading activity for each security, where available, and review
the financial solvency of each security issuer and obtain other relevant information from our
investment advisors to estimate the fair value for each security in our investment portfolio. As of
September&nbsp;30, 2010, eleven of our securities were trading below our amortized cost basis. We
determined each decline in value to be temporary based upon the factors described above. We expect
to realize the fair value of these securities, plus accrued interest, either at the time of
maturity or when the security is sold.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of our current holdings are classified as available-for-sale marketable securities and are
recorded at fair value on our balance sheet with the unrealized gains and losses recorded in
accumulated other comprehensive income (loss). Our marketable securities at September&nbsp;30, 2010 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="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="2">Amortized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost (1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses (2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value (1)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current marketable securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Corporate bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,161</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Certificates of deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Government municipal bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,466</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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,634</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>
</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>Included in amortized cost and fair value is purchased and accrued interest of $451.</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>The aggregate related fair value of securities with unrealized losses as of September&nbsp;30, 2010 was $18,909.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our marketable securities at September&nbsp;30, 2009 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="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="2">Amortized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost (1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses (3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value (1)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current marketable securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Corporate bonds (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,254</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Certificates of deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,025</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Government municipal bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,032</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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,311</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current marketable securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Corporate bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(44</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,063</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,374</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>
</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>Included in amortized cost and fair value is purchased and accrued interest of $264.</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>The remaining portion of the Lehman Brothers Bond is included in amortized cost at a fair value
of $134.</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>The aggregate related fair value of securities with unrealized losses as of September&nbsp;30, 2009
was $9,009.</TD>
</TR>

</TABLE>




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



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

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


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


<!-- xbrl,n -->

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>7. FAIR VALUE MEASUREMENTS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Fair value is defined as the exit price, or the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants as of the
measurement date. This standard also establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable inputs are inputs
market participants would use in valuing the asset or liability based on market data obtained from
independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors
market participants would use in valuing the asset or liability based upon the best information
available in the circumstances. The categorization of financial assets and liabilities within the
valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The hierarchy is broken down into three levels defined as follows:
</DIV>


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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 1 &#151; Inputs are quoted prices in active markets for identical assets or liabilities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 2 &#151; Inputs include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, and inputs (other than quoted prices) that are observable for the asset
or liability, either directly or indirectly.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 3 &#151; Inputs are unobservable for the asset or liability and their fair values are
determined using pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption or input is unobservable.
Level 3 also may include certain investment securities for which there is limited market
activity or a decrease in the observability of market pricing for the investments, such
that the determination of fair value requires significant judgment or estimation.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Assets and Liabilities that are Measured at Fair Value on a Recurring Basis</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Fair value is applied to financial assets, such as certificates of deposit, corporate bonds and
government municipal bonds, which are classified and accounted for as available-for-sale. These
items are stated at fair value at each reporting period; however, the definition of fair value is
now applied using the above guidance.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following tables provide information by level for financial assets that are measured at fair
value on a recurring basis (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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Fair Value Measurements at September 30, 2010 using:</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total carrying</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Quoted price in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">value at</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">active markets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">observable inputs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">unobservable inputs</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">September 30, 2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</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">Cash equivalents:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Money market</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Available-for-sale marketable securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Corporate bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,161</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">26,161</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">Certificates of deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,007</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">5,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Government municipal bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,466</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">5,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total cash equivalents and marketable
securities measured at fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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

<!-- xbrl -->

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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>7. FAIR VALUE MEASUREMENTS (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="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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Fair Value Measurements at September 30, 2009 Using:</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total carrying</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Quoted price in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">value at</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">active markets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">observable inputs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">unobservable inputs</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">September 30, 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</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">Cash equivalents:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Money market</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Available-for-sale marketable securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Corporate bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,317</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">9,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Certificates of deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,025</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">10,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Government municipal bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,032</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">8,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total cash equivalents and marketable
securities measured at fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">Cash equivalents are measured at fair value using quoted market prices in active markets for
identical assets. We value our Level 2 assets using inputs that are based on market indices of
similar assets within an active market. We have no financial assets valued with Level 3 inputs as
of September&nbsp;30, 2010 nor have we purchased or sold any Level 3 financial assets during the three
months ended September&nbsp;30, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During
fiscal 2010, we reclassified $27.2&nbsp;million of investments at September&nbsp;30, 2009 from Level 1 to Level 2. It was
determined that the fair value of such investments is based off of indices and matrices for similar
assets, as defined within Level 2 valuation techniques, and not identical assets, as defined within
Level 1 valuation techniques. Our policy for determining when to recognize transfers between levels
is based on the actual date of the event or change in circumstances that caused the transfer. This
transfer had no impact on the fair value of our investments as stated in any of the periods
presented. There were no other transfers during fiscal 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table provides a reconciliation of the beginning and ending balances during fiscal
2010 of items measured at fair value on a recurring basis that used significant unobservable inputs
(Level 3) in thousands:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Realized gain recorded in other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sale of security</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(170</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 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 use of different assumptions, applying different judgment to inherently subjective matters
and changes in future market conditions could result in significantly different estimates of fair
value of our securities, currently and in the future. If market conditions deteriorate, we may
incur impairment charges for securities in our investment portfolio.
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. FINANCIAL GUARANTEES</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, we warrant our products to be free from defects in material and workmanship under
normal use and service. The warranty periods range from one to five years from the date of
receipt. We have the option to repair or replace products we deem 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 incidents and are evaluated on an ongoing basis to ensure the adequacy of the warranty
</DIV>


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

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

<!-- xbrl -->


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




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





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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">accrual. The following table summarizes the activity associated with the product warranty accrual
for the years ended September&nbsp;30, 2010, 2009 and 2008 (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accruals for</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Fiscal</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Warranties</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Settlements</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">October 1,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">issued</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">made</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">September 30,</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(831</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(856</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">970</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(920</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,214</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. RESTRUCTURING</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;23, 2009, we announced a business restructuring to increase our focus on wireless products
and solutions that include hardware, software and services. The restructuring included the closing
of an engineering facility in Long Beach, California, and the relocation and consolidation of the
manufacturing facility in Davis, California to our Minnetonka, Minnesota headquarters. We paid a
lease cancellation fee for one of the leased facilities in Davis and had vacated the facility as of
the end of fiscal 2009. We continue to maintain non-manufacturing activities at the remaining
leased facility in Davis, California. As a result of these initiatives, during the third quarter
of fiscal 2009 we recorded a $2.0&nbsp;million charge, which consisted of $1.8&nbsp;million for employee
termination costs for 86 positions and $0.2&nbsp;million for contract termination fees and other
relocation costs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of the 86 positions were vacated in fiscal 2009. The employee termination costs included
severance and the associated costs of continued medical benefits and outplacement services. The
other restructuring expenses included contract termination fees for non-renewal of lease terms
relating to one of the facilities in Davis, California and relocation expenses for employees. A
summary of the restructuring charges and other activity within the restructuring accrual is listed
below (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Employee</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Termination Costs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</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">Balance at September&nbsp;30, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restructuring charge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,953</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(86</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,232</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restructuring charge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</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">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(244</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(255</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reversal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(438</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(468</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The remaining liability is mostly related to continued medical benefits as part of the
American Recovery and Reinvestment Act of 2009 (ARRA), which provides for premium reductions for
health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The ARRA
was amended by the Department of Defense Appropriations Act of 2010 on December&nbsp;19, 2009, which
provided an additional six months (from nine to fifteen months) for receiving the subsidy. We
recorded an additional accrual of $0.1&nbsp;million for the additional six months of continued medical
benefits during the three months ended
</DIV>


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

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




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




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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">December&nbsp;31, 2009. During fiscal 2010, we eliminated $0.5&nbsp;million of the restructuring accrual
since costs associated with continued medical benefits and relocation were lower than expected. We
expect the remaining liability to be settled by the end of the second quarter of fiscal 2011.
</DIV>


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

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of income before income taxes are as follows (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">For the years ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,267</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,915</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of the income tax provision are as follows (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">For the years ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,654</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">912</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">U.S.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,052</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,829</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,983</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(604</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(885</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The net deferred tax asset (liability)&nbsp;at September&nbsp;30 consists of the following (in
thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(82</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,457</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,331</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:30px; text-indent:-15px">Net deferred tax asset (liability)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,524</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Uncollectible accounts and other reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">654</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">567</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Compensation costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,999</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax credit carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">329</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,614</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:30px; text-indent:-15px">Net deferred tax asset (liability)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,524</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2010, we have domestic tax credit carryforwards of $0.2&nbsp;million the
majority of which will expire in 2013. We also have foreign tax credit carryforwards at September
30, 2010 of $0.1&nbsp;million, the majority of which will expire in 2013.
</DIV>


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

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




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




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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have concluded that it is more likely than not that our deferred tax assets will be realized
based on future projected taxable income and the anticipated future reversal of deferred tax
liabilities. The amount of the deferred tax assets actually realized, however, could vary if there
are differences in the timing or amount of future reversals of existing deferred tax liabilities or
changes in the amounts of future taxable income. If our future taxable income projections are not
realized, a valuation allowance may be required, and would be reflected as income tax expense at
the time that any such change in future taxable income is determined.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The reconciliation of the statutory federal income tax rate to our effective income tax rate for
the years ended September&nbsp;30 is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2008</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statutory income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;resulting from:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State taxes, net of federal benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</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">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Utilization of tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Manufacturing deduction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development credit related to 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquired in-process research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustment of tax contingency reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-deductible stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</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>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.7</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>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All of our unrecognized tax benefits are classified as a long-term liability as we do not
expect significant payments or receipts to occur over the next 12&nbsp;months. A reconciliation of the
beginning and ending amount of unrecognized tax benefits 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="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Fiscal year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">Unrecognized tax benefits at beginning of fiscal year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increases related to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prior year income tax positions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current year income tax positions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">471</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Decreases related to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prior year income tax positions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Settlements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,740</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expiration of the statute of limitations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(372</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(450</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(278</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized tax benefits at end of fiscal year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,652</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The total amount of unrecognized tax benefits that if recognized would affect the effective
tax rate is $2.2&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recognize interest and penalties related to income tax matters in income tax expense. During
fiscal year ended September&nbsp;30, 2010 we recorded a benefit of $0.1&nbsp;million and in fiscal years
ended September&nbsp;30, 2009 and 2008, we recorded an expense of less than $0.1&nbsp;million and $0.1
million, respectively, of interest and penalties related to income tax matters in the provision for
income taxes. As of September&nbsp;30, 2010 and 2009 we have accrued interest and penalties related to
unrecognized tax benefits of $0.6&nbsp;million and $0.8&nbsp;million, respectively, included in long-term
income taxes payable on our consolidated balance sheet.
</DIV>



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



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



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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We estimate that it is reasonably possible that the total amounts of unrecognized tax benefits will
significantly decrease over the next 12&nbsp;months due to the lapse of the applicable foreign statute
of limitations. We estimate the range of this change to be between $0.5&nbsp;million and $0.7&nbsp;million
in taxes, penalties and interest.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2010, we reversed $2.3&nbsp;million in income tax reserves associated primarily with the
closing of prior tax years through statute expiration and the conclusion of a federal tax audit.
While the statutes of limitations have not expired, U.S. federal income tax returns for the periods
ended September&nbsp;30, 2007 and September&nbsp;30, 2008 have been audited by and settled with the Internal
Revenue Service. The aforementioned income tax benefits resulting from the reversal of income tax
reserves and other discrete tax benefits reduced the effective tax rate by 22&nbsp;percentage points in
fiscal 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2009, we reversed $0.6&nbsp;million in income tax reserves primarily associated with the
statutory closing of a prior U.S. federal and state tax year and settlement of prior liabilities
under amnesty programs. We recorded an additional current discrete tax benefit of $0.5&nbsp;million
resulting from the enactment on October&nbsp;3, 2008 of the retroactive extension of the research and
development tax credit for activity from January&nbsp;1, 2008 to September&nbsp;30, 2008. We also recorded
adjustments to actual for items reported on the tax returns filed for fiscal 2007 and 2008. The
aforementioned income tax benefits resulting from the reversal of income tax reserves and other
discrete tax benefits reduced the effective tax rate by 27&nbsp;percentage points in fiscal 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During fiscal 2008, we reversed $0.3&nbsp;million in income tax reserves primarily associated with the
statutory closing of a prior U.S. federal and state tax year. We recorded an additional $0.2
million of discrete tax benefits as a result of a filing of a prior year tax return and adjustments
to actual for items reported on the tax returns for fiscal 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We operate in multiple tax jurisdictions both in the U.S. and outside of the U.S. Accordingly, we
must determine the appropriate allocation of income to each of these jurisdictions. This
determination requires us to make several estimates and assumptions. Tax audits associated with
the allocation of this income, and other complex issues, may require an extended period of time to
resolve and may result in adjustments to our income tax balances in those years that are material
to our consolidated financial position and results of operations. We are no longer subject to
income tax examination for taxable years prior to fiscal 2009 and 2006 in the case of U.S. federal
and non-U.S. income tax authorities, respectively, and for tax years generally before fiscal 2006,
in the case of state taxing authorities, consisting primarily of Minnesota and California.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At September&nbsp;30, 2010, we have approximately $6.0&nbsp;million of accumulated undistributed earnings of
controlled foreign subsidiaries that are considered to be reinvested indefinitely as of such date
pursuant to authoritative guidance issued by FASB related to undistributed earnings of subsidiaries
and corporate joint ventures. Accordingly, no deferred tax has been provided on such earnings. If
the applicable earnings were remitted to us, applicable U.S. federal tax would be substantially
offset by available foreign tax credits.
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. STOCK-BASED COMPENSATION</B>
</DIV>

<!-- xbrl,body -->
<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 December&nbsp;4, 2009 (the Omnibus Plan), as well as our Stock Option Plan as
amended and restated as of November&nbsp;27, 2006 (the Stock Option Plan) and Non-Officer Stock
Option Plan as amended and restated as of November&nbsp;27, 2006 (the Non-Officer Plan), both of
which expired during the first quarter of fiscal 2007 (the Plans). Additional awards cannot
be made under the Stock Option Plan or the Non-Officer Plan. The authority to grant options
under the Omnibus Plan and set other terms and conditions rests with the Compensation
Committee of the Board of Directors.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /Folio -->
</DIV>

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

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




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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>11. STOCK-BASED COMPENSATION (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Stock Option Plan and the Non-Officer Plan include nonstatutory stock options (NSOs) and
the Stock Option Plan also includes incentive stock options (ISOs) to employees and others who
provide services to us, including consultants, advisers and directors. Options granted under
these plans generally vest over a four year service period and will expire if unexercised
after ten years from the date of grant. Share awards vest upon continued employment. The
exercise price for ISOs and non-employee director options granted under the Stock Option Plan
was set at the fair market value of our common stock based on the closing price on the date of
grant. The exercise price for NSOs granted under the Stock Option Plan or the Non-Officer
Plan was set by the Compensation Committee of the Board of Directors and was set to the
exercise price based on the closing price on the date of grant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Omnibus Plan authorizes the issuance of up to 5,750,000 common shares in connection with awards
of stock options, stock appreciation rights, restricted stock, performance units or stock awards.
Eligible participants include our employees, non-employee directors, consultants and advisors.
Awards may be granted under the Omnibus Plan until December&nbsp;4, 2019 as an authorization to issue an
additional 2,500,000 common shares was ratified on January&nbsp;25, 2010 at the Annual Meeting of
Stockholders. Options under the Omnibus Plan can be granted as either ISOs or NSOs. The exercise
price shall be determined by our Compensation Committee but shall not be less than the fair market
value of our common stock based on the closing price on the date of grant.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We recorded cash received from the exercise of stock options of $1.7&nbsp;million, $0.4&nbsp;million and $1.7
million during fiscal years 2010, 2009 and 2008, respectively. The excess tax benefits from
stock-based compensation were immaterial during fiscal 2010 and were $0.1&nbsp;million and $0.2&nbsp;million
during fiscal 2009 and 2008, respectively. Upon exercise, we issue new shares of stock. The Plans
have provisions allowing employees to elect to pay their withholding obligation through share
reduction. No employees elected to pay income tax withholding obligations through share reduction
during fiscal 2010, 2009 or 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Also, we sponsor an Employee Stock Purchase Plan as amended and restated as of December&nbsp;4, 2009 and
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 recently ratified on January&nbsp;25, 2010 at the Annual Meeting of Stockholders to
increase the number of shares reserved for future purchases to the Purchase Plan by 250,000 shares
bringing the total number of shares to 2,000,000 shares of our Common Stock that may be purchased
under the plan. Employee contributions to the Purchase Plan were $0.9&nbsp;million in the fiscal year
ending 2010 and $1.0&nbsp;million each in the fiscal years ended 2009 and 2008. Pursuant to the
Purchase Plan, 124,087, 145,316, and 117,162 common shares were issued to employees during the
fiscal years ended 2010, 2009 and 2008, respectively. Shares are issued under the Purchase Plan
from treasury stock. As of September&nbsp;30, 2010, 427,442 common shares were available for future
issuances under the Purchase Plan.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio -->
</DIV>

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

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




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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>11. STOCK-BASED COMPENSATION (CONTINUED)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-based compensation expense is included in the consolidated results of operations as
follows (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">$</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">181</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">1,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,251</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">739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">858</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,407</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,697</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,121</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,141</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,223</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation after income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,474</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stock-based compensation cost capitalized as part of inventory was immaterial as of September
30, 2010, 2009 and 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of options and common shares reserved for grant under the Plans and Assumed Plans are as
follows (in thousands, except per common share amounts):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Aggregate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Available</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Contractual Term</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Intrinsic</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">for Grant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(in years)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value (1)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional Shares approved for
grant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,017</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(846</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR 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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,253</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at September&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,843</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">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

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

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our
closing stock price of $9.49 as of September&nbsp;30, 2010, which would have been received by the option
holders had all option holders exercised their options as of that date.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The intrinsic value of an option is the amount by which the fair value of the underlying stock
exceeds its exercise price. The total intrinsic value of all options exercised during each of the
twelve months ended September&nbsp;30, 2010, 2009 and 2008 was $0.6&nbsp;million, $0.2&nbsp;million and $0.9
million, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The table below shows the weighted average fair value, which was determined based upon the fair
value of each option on the grant date utilizing the Black-Scholes option-pricing model and the
related assumptions:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">Fair value of options granted (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,727</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average per option grant date fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assumptions used for option grants:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">1.86% - 2.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">1.57% - 2.41</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">2.53% - 3.41</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">4.5 - 5 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">4.5 - 5 years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">4 - 5 years</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">43% - 45</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">41% - 45</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">36% - 45</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">44</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->67<!-- /Folio -->
</DIV>

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

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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>11. STOCK-BASED COMPENSATION (CONTINUED)</B>
</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 our stock. We use historical data to
estimate option exercise and employee termination information within the valuation model; separate
groups of grantees that have similar 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 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of our non-vested options as of September&nbsp;30, 2010 and changes during the twelve months
then ended is presented below (in thousands, except per common share amounts):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Grant Date</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Fair Value per</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Common Share</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested at September
30, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.39</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">(721</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.96</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.77</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>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nonvested at September
30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We use historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture
rate used in fiscal 2010 was 2.0%. As of September&nbsp;30, 2010 the total unrecognized compensation
cost related to non-vested stock-based compensation arrangements, net of expected forfeitures, was
$4.7&nbsp;million and the related weighted average period over which it is expected to be recognized is
approximately 2.5&nbsp;years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At September&nbsp;30, 2010, the weighted average exercise price and remaining life of the stock options
are as follows (in thousands, except remaining life and exercise price):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="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 nowrap align="center" colspan="13" style="border-bottom: 1px solid #000000">Options Outstanding </TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Options Exercisable</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Range of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Options</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Contractual Life</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Average</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exercise Prices</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">( In Years)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Vested</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exercise Price</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$2.19  - $6.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$6.01  - $8.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$8.01  - $9.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$9.01  - $11.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$11.01  - $13.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$13.01 - $14.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$14.01 - $15.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$15.01 - $16.88</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.30</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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">$2.19 - $16.88</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.86</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The total fair value of shares vested during fiscal 2010 was $2.9&nbsp;million, $3.2&nbsp;million
in fiscal 2009 and $3.4&nbsp;million in fiscal 2008.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->68<!-- /Folio -->
</DIV>

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

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




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


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. SALE AND LEASEBACK OF BUILDING</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;18, 2008, we entered into a contract for the sale of our building in Dortmund,
Germany, and subsequent partial leaseback for a five year term (the Agreement). Upon the
closing of the transaction in March&nbsp;2008, we initiated the leaseback of approximately 40% of
the property for a period of five years, with a renewal option for an additional five years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The building was sold for 4.5&nbsp;million Euros (equivalent to $6.9&nbsp;million), resulting in a gain
on sale of 1.0&nbsp;million Euros ($1.6&nbsp;million). As a result of the leaseback, $1.5&nbsp;million of
the gain on the sale was deferred and is being recognized ratably over the lease term as an
offset to rent expense. The remaining $0.1&nbsp;million was recognized in the second quarter of
fiscal 2008 as a component of general and administrative expense. Of the total sale price,
4.2&nbsp;million Euros ($6.5&nbsp;million) was received during March&nbsp;2008 and the remaining 0.3&nbsp;million
Euros ($0.4&nbsp;million) was received in April&nbsp;2008. We were required, as part of the Agreement,
to deposit 0.3&nbsp;million Euros ($0.4&nbsp;million) into an interest-bearing bank account, which will
be refunded to us at the end of the lease term. This deposit was made during March&nbsp;2008 and
is included as restricted cash in other noncurrent assets on our consolidated balance sheet as
of September&nbsp;30, 2010 and 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The lease expires in 2013 with future minimum payments as follows: In years 2011 through 2012
our yearly minimum lease payment is $0.4&nbsp;million each year. In 2013, our minimum lease
payment will be $0.2&nbsp;million.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. COMMON STOCK REPURCHASE</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Board of Directors has authorized 1,500,000 shares of our common stock for repurchase. During
fiscal 2008, we began to repurchase our common stock and purchased 471,200 shares for $5.1&nbsp;million.
During fiscal 2009, we purchased an additional 893,162 shares for $6.6&nbsp;million. We did not
repurchase any of our stock during fiscal 2010. As of September&nbsp;30, 2010, 135,638 shares remain
available for repurchase.
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. SHARE RIGHTS PLAN</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under our share rights plan, each right entitles its holder to buy one one-hundredth of a share of
a Series&nbsp;A Junior Participating Preferred Stock at an exercise price of $60, subject to adjustment.
The rights are not exercisable until a specified distribution date as defined in the Share Rights
Agreement. The Rights will expire on June&nbsp;30, 2018, unless extended or earlier redeemed or
exchanged by us as defined in the Share Rights Agreement.
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. EMPLOYEE BENEFIT PLANS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We currently have a savings and profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code (the Code), whereby eligible employees may contribute up to 25% of their pre-tax
earnings, not to exceed amounts allowed under the Code.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We provide a match of 100% on the first 3% of each employee&#146;s bi-weekly contribution and a 50%
match on the next 2% of each employee&#146;s bi-weekly contribution. In addition, we may make
contributions to the plan at the discretion of the Board of Directors. We provided
matching contributions of $1.1&nbsp;million, $1.2&nbsp;million and $1.2&nbsp;million in the fiscal years ended
September&nbsp;30, 2010, 2009 and 2008, respectively.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->69<!-- /Folio -->
</DIV>

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

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




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


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. COMMITMENTS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into various operating lease agreements for office facilities and equipment, the
last of which expires in fiscal 2017. The office facility leases generally require us to pay a
pro-rata share of the lessor&#146;s operating expenses. Certain operating leases contain escalation
clauses and are being amortized on a straight-line basis over the term of the lease.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following schedule reflects future minimum rental commitments under noncancelable operating
leases:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Amount</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fiscal Year</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(in thousands)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,389</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,172</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2014</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">723</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2015</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">499</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum payments required</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,370</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following schedule shows the composition of total rental expense for all operating leases
for the years ended September&nbsp;30 (in thousands):
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: sublease rentals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(301</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. CONTINGENCIES</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Initial Public Offering Securities Litigation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There have been no additional developments in <U>In re Initial Public Offering Securities
Litigation</U> since our Annual Report on Form 10-K for the year ended September&nbsp;30, 2009. Under
the settlement, our insurers are to pay the full amount of settlement share allocated to us, and we
would bear no financial liability beyond our deductible of $250,000. While there can be no
guarantee as to the ultimate outcome of this pending lawsuit, we expect that our liability
insurance will be adequate to cover any potential unfavorable outcome, less the applicable
deductible amount of $250,000 per claim. As of September&nbsp;30, 2010, we have an accrued liability
for the anticipated settlement of $300,000 which we believe is adequate and reflects the amount of
loss that is probable and a receivable related to the insurance proceeds of $50,000, which
represents the anticipated settlement of $300,000 less our $250,000 deductible. In the event we
should have losses that exceed the limits of the liability insurance, such losses could have a
material adverse effect on our business and our consolidated results of operations or financial
condition.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;18, 2010 and June&nbsp;24, 2010, respectively, two shareholders filed derivative actions against
our directors, our former Chief Financial Officer, and another executive officer, in the Hennepin
County District Court, State of Minnesota, in Minneapolis. We also were named as a nominal
defendant in the actions. The complaints alleged that the individual defendants caused us to
operate in countries with dubious business practices without having internal controls or an
accounting system that were adequate to ensure that we did not violate the Foreign Corrupt
Practices Act. The complaints alleged causes of action against the individual defendants for (1)
breach of fiduciary duty, (2)&nbsp;waste of corporate assets, and (3)&nbsp;unjust enrichment. The complaints
sought to recover, purportedly on our behalf, unspecified damages, equitable relief, attorneys&#146;
fees, and costs of litigation. On August&nbsp;2, 2010, we filed a motion to dismiss these lawsuits. On
August&nbsp;16, 2010, the derivative actions were dismissed without prejudice.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->70<!-- /Folio -->
</DIV>



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


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>17. CONTINGENCIES (CONTINUED)</B>
</DIV>


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

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;11, 2010, SIPCO, LLC filed a patent infringement lawsuit against us in federal court in the
Eastern District of Texas. The lawsuit included allegations against Digi and five other companies
pertaining to the infringement of SIPCO&#146;s patents by wireless mesh networking products. The
lawsuit seeks monetary and non-monetary relief. We cannot predict the outcome of this matter at
this time or whether it will have a materially adverse impact on our business prospects and our
consolidated financial condition, results of operations or cash flow.
</DIV>


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


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. QUARTERLY FINANCIAL DATA (UNAUDITED)</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(in thousands, except per common share data)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000">Quarter ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Dec. 31</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Mar. 31</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">June 30</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Sept. 30</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">42,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">47,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">47,266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (1)(2)(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,244</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,012</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,411</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (1)(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">959</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income per common share &#151; diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

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

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>During 2010 and 2009, we recorded discrete income tax benefits of $2.3&nbsp;million and $1.2&nbsp;million, respectively. Discrete
income tax benefits for fiscal 2010 were recorded of $0.1&nbsp;million in the first quarter and $2.2&nbsp;million in the third quarter
related to the reversal of tax reserves primarily due to the closure of prior tax years through statute expiration and audit.
Discrete income tax benefits for fiscal 2009 were recorded of $0.4&nbsp;million in the first quarter, $0.5&nbsp;million in the third quarter
and $0.3&nbsp;million in the fourth quarter related to the reversal of previously established income tax reserves, the resolution of
of certain state tax matters and the closing of a prior tax year.</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>We reversed a business restructuring accrual of $0.4&nbsp;million ($0.2&nbsp;million after tax) in the second quarter of fiscal 2010 and
$0.1&nbsp;million ($0.1&nbsp;million after tax) in the fourth quarter of fiscal 2010. During the third quarter of fiscal 2009, we recorded the
business restructuring charge of $2.0&nbsp;million ($1.3&nbsp;million after tax).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>We incurred expenses related to the investigation (see Note 19) and recorded $1.1&nbsp;million ($0.7&nbsp;million after tax) in the third
quarter of fiscal 2010 and $0.3&nbsp;million ($0.2&nbsp;million after tax) in the fourth quarter of fiscal 2010.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->71<!-- /Folio -->
</DIV>

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






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


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>19. INVESTIGATION</B>
</DIV>


<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the third quarter of fiscal 2010, we received allegations regarding possible violations of
our gifts, travel and entertainment policy for activities in the Asia Pacific (APAC)&nbsp;region by a
few employees. We initiated an investigation of these policy and corresponding internal control
issues, and any possible related violations of applicable law, including the Foreign Corrupt
Practices Act (FCPA). We voluntarily disclosed the allegations to the United States Department of
Justice (DOJ)&nbsp;and the United States Securities and Exchange Commission (SEC). The investigation
was under the direction of the Audit Committee, comprised solely of independent directors,
utilizing outside counsel, and focused on the APAC region. For completeness purposes, the
investigation reviewed certain other foreign regions where no allegations had been made. We
provided the DOJ and SEC with updates and our proposed remediation plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We announced on August&nbsp;2, 2010 that we received confirmation through discussions with
representatives of the DOJ and the SEC that they would not be initiating any enforcement
proceedings against Digi, including not seeking any monetary or other sanctions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The investigation identified violations of company policy that primarily involved three individuals
in Hong Kong and our former Chief Financial Officer. The investigation also found an
unsubstantiated accrued liability recorded in Hong Kong. All four individuals were terminated or
had resigned from the company as of May&nbsp;12, 2010. While we determined that no adjustment was
required to our previously reported consolidated financial statements, we recorded an immaterial
out-of-period adjustment during the third quarter of fiscal 2010 in order to correct the
unsubstantiated accrued liability in Hong Kong.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based upon what we learned from the investigation, we have and are further strengthening our
monitoring controls over foreign locations and other operational and regulatory compliance
procedures, including retention of third party assistance to enhance our controls. We incurred
general and administrative expense of $1.4&nbsp;million related to the cost of the investigation and
remediation during fiscal 2010.
</DIV>

<!-- /xbrl,ns -->



<P align="center" style="font-size: 10pt"><!-- Folio -->72<!-- /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">
<A name="113"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.</B></TD>
</TR>
</TABLE>
</DIV>

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

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

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>CONTROLS AND PROCEDURES</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Evaluation of Disclosure Controls and Procedures</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of the principal executive officer and acting principal
financial officer, of our disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;)). Based on this
evaluation, the principal executive officer and acting principal financial officer concluded that
our disclosure controls and procedures are effective.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Management&#146;s Report on Internal Control over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We assessed the effectiveness of our internal control over financial reporting as of September&nbsp;30,
2010 using the framework set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO)&nbsp;in <I>Internal Control &#151; Integrated Framework</I>. Based on this assessment,
management concluded that our internal control over financial reporting was effective as of
September&nbsp;30, 2010. The effectiveness of our internal control over financial reporting as of
September&nbsp;30, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears in Item&nbsp;8 of this report.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes in Internal Control Over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There was no change in our internal control over financial reporting identified in connection with
the evaluation required by Rule&nbsp;13a-15(d) and 15d-15(d) of the Exchange Act that occurred during
the quarterly period ended September&nbsp;30, 2010 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The previously announced investigation, which was the result of allegations that we learned of in
April&nbsp;2010, was completed in July&nbsp;2010 (refer to Note 19 of the Consolidated Financial Statements
for more detail). Soon after learning of these allegations, we began to take immediate remedial
actions. The investigation identified violations of our gifts, travel and entertainment policy
that primarily involved three individuals in Hong Kong and our former Chief Financial Officer. The
investigation also found an unsubstantiated accrued liability recorded in Hong Kong. All four
individuals were terminated or had resigned from the company as of May&nbsp;12, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the allegations and the ultimate findings of the investigation, we performed an
evaluation of our internal controls over financial reporting during the third fiscal quarter of
2010 to consider the implications of these findings. We identified deficiencies in the design of
the internal reporting structure in Hong Kong, as well as deficiencies in the design of certain
controls in Hong Kong, including expense reviews, cash controls, review of Hong Kong financial
information and account reconciliations in both Hong Kong and the corporate office, and in the
competency of those performing financial accounting and reporting activities in Hong Kong. These
deficiencies allowed inappropriate activities, such as those that ultimately led to the
investigation and
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->73<!-- /Folio -->
</DIV>

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

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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>CONTROLS AND PROCEDURES (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">terminations and resignation noted above, to not be prevented or detected on a timely basis. We
have determined based on a review of the internal reporting structure and controls at Hong Kong in
comparison to our other locations that these issues were unique to the Hong Kong entity and that
the Company&#146;s other entities had controls in place that were operating and effective. While we
determined that no adjustment was required to our previously reported consolidated financial
statements, we determined that the aggregation of these control deficiencies, combined with the
influence and span of control of our former Chief Financial Officer in the Hong Kong region and
collusion on the part of the individuals involved, resulted in a material weakness in the Company&#146;s
control environment. A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of the Company&#146;s annual or interim financial statements will not be prevented
or detected on a timely basis. The control deficiencies at Digi could have resulted in a material
misstatement of the consolidated financial statements that would not have been prevented or
detected on a timely basis.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We determined that this material weakness was remediated during the third quarter of fiscal 2010.
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9B.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>OTHER INFORMATION</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Item&nbsp;5.03 <U>Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;23, 2010, our Board of Directors amended and restated the company&#146;s By-Laws, as
previously amended and restated (the &#147;By-Laws&#148;) to clarify certain provisions regarding a
stockholder&#146;s notice of business to be conducted or notice of director nominations to be made at an
annual meeting. The amendments are effective as of November&nbsp;23, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the amendments, the deadlines for such notices set forth in Sections&nbsp;2.02(a), with
respect to stockholder&#146;s notices of business to be conducted, and 3.13(a), with respect to
stockholder&#146;s notices of director nominations to be made, have also been adjusted and clarified.
In order to be timely any such stockholder&#146;s notice must be delivered to our Secretary not less
than 120&nbsp;days before the first anniversary of the date of the preceding year&#146;s annual meeting of
stockholders. If, however, the date of the meeting is more than 30&nbsp;days before or 60&nbsp;days after
such anniversary date, the notice will be timely only if delivered not less than 120&nbsp;days before
the meeting or, if later, within 10&nbsp;days after the first public announcement of the date of the
annual meeting. Section&nbsp;3.13(a) further provides that, in the case of a special meeting of
stockholders called for the purpose of electing directors, a stockholder&#146;s notice of director
nominations to be made at that meeting will be timely if delivered to our Secretary within ten days
after the first public announcement of the date of such special meeting.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Both Section&nbsp;2.02(b) and Section&nbsp;3.13(b) have been amended to further clarify the securities and
related agreements that must be set forth on a stockholder&#146;s notice. Those items are, with respect
to the stockholder and any beneficial owner(s) identified in the notice: (A)&nbsp;the number of shares
of our stock of each class or series that is beneficially owned, (B)&nbsp;any option, warrant,
convertible security, stock appreciation right, swap, or similar right with an exercise or
conversion privilege or a settlement payment or mechanism at a price related to any class or series
of shares of our stock or with a value derived in whole or in part from the value of any class or
series of shares of our stock (a &#147;Derivative Instrument&#148;) and any other opportunity to profit or
share in any profit derived from any increase or decrease in the value of our shares, (C)&nbsp;any
proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or
any such beneficial owner has a right to vote any shares, (D)&nbsp;any short interest in any Digi
security, (E)&nbsp;any rights to dividends on our shares that are separated or separable from the
underlying shares of our stock, (F)&nbsp;any proportionate interest in shares of our stock or Derivative
Instruments held, directly or indirectly, by a general or limited partnership in which such
stockholder or any such beneficial owner is a general partner or, directly or indirectly,
beneficially owns an interest in a general partner and (G)&nbsp;any performance-related fees that such
stockholder or any such beneficial
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->74<!-- /Folio -->
</DIV>

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




<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9B.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>OTHER INFORMATION (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">owner is entitled to based on any increase or decrease in the value of shares of our stock or
Derivative Instruments, if any, as of the date of such notice.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Section&nbsp;2.02(b), as amended, requires that a stockholder&#146;s notice of business to be conducted at an
annual meeting set forth (i)&nbsp;a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (ii)&nbsp;the name and address, as
they appear on the our books, of the stockholder proposing such business and the name and address
of any beneficial owner on whose behalf the proposal is made, (iii)&nbsp;securities and related
agreements disclosure discussed above, (iv)&nbsp;any material interest in such business of the
stockholder or any such beneficial owner, and (v)&nbsp;a representation and other appropriate evidence
that the stockholder is a holder of record of shares of stock entitled to vote on such business at
the meeting, will continue to be a holder of record of shares of stock entitled to vote on such
business through the date of the meeting, and intends to appear in person or by proxy at the
meeting to make the proposal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Section&nbsp;3.13(b), as amended, requires that a stockholder&#146;s notice of director nominations to be
made at an annual meeting of stockholders set forth, as to each person whom the stockholder
proposes to nominate for election as a director: (i)&nbsp;such person&#146;s name, (ii)&nbsp;all information
relating to such person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or that is otherwise required, pursuant to Regulation&nbsp;14A
under the Exchange Act, and (iii)&nbsp;such person&#146;s signed written consent to being a nominee and to
serving as a director if elected. As to the stockholder giving the notice, Section&nbsp;3.13(b), as
amended, further requires (i)&nbsp;the name and address, as they appear on our books, of such
stockholder and the name and address of any beneficial owner on whose behalf the nomination is
made, (ii)&nbsp;securities and related agreements disclosure discussed above, (iii)&nbsp;a description of any
material relationships, including financial transactions and compensation, between the stockholder
and the proposed nominee(s), and (iv)&nbsp;a representation and other appropriate evidence that the
stockholder is a holder of record of shares of our stock entitled to vote for the election of
directors, will continue to be a holder of record of shares of stock entitled to vote for the
election of directors through the date of the meeting, and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to certain other technical and conforming amendments to Sections&nbsp;2.02 and 3.13 of the
By-Laws, Section&nbsp;2.04 was amended to permit delivery of notice of a meeting of stockholders by
delivering a separate written notice of the posting of such information on an electronic network.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The foregoing summary of the amendments is qualified in its entirety by reference to the text of
the amended and restated By-Laws, which is attached to this Annual Report on Form 10-K as Exhibit
3(b) and is incorporated herein by reference.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->75<!-- /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">
<A name="116"></A>
</DIV>

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

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

<DIV align="left" style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 10.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Incorporated into this item by reference is the information appearing under the headings &#147;Proposal
No.&nbsp;1 &#151; Election of Directors&#148; and &#147;Security Ownership of Principal Stockholders and Management&#148;
in our Proxy Statement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Executive Officers of the Registrant</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of the date of filing this Form 10-K, the following individuals were executive officers of the
Registrant:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&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">Name</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Age</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Position</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Joseph T. Dunsmore
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman, President and Chief Executive Officer</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Brenda L. Mueller
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Acting Principal Financial Officer, Acting Principal
Accounting Officer and Corporate Controller</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lawrence A. Kraft
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">44</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Sales and Marketing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Joel K. Young
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">46</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Research and Development
and Chief Technical Officer</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Dunsmore joined our company in October&nbsp;1999 as President and Chief Executive Officer and a
member of the Board of Directors and was elected Chairman of the Board in May&nbsp;2000. Prior to
joining us, Mr.&nbsp;Dunsmore was Vice President of Access for Lucent Microelectronics, a
telecommunications company now known as Agere Systems Inc., since June&nbsp;1999. From October&nbsp;1998 to
June&nbsp;1999, he acted as an independent consultant to various high technology companies. From
February&nbsp;1998 to October&nbsp;1998, Mr.&nbsp;Dunsmore was Chief Executive Officer of NetFax, Inc., a
telecommunications company. From October&nbsp;1995 to February&nbsp;1998, he held executive management
positions at US Robotics and then at 3COM after 3COM acquired US Robotics in June&nbsp;1997. Prior to
that, Mr.&nbsp;Dunsmore held various marketing management positions at AT&#038;T Paradyne Corporation from
May&nbsp;1983 to October&nbsp;1995. Mr.&nbsp;Dunsmore is also a director of Analysts International Corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Brenda L. Mueller, our company&#146;s Corporate Controller, was elected by our Board of Directors on May
7, 2010, as Acting Principal Financial Officer and Acting Principal Accounting Officer, effective
the same day. Ms.&nbsp;Mueller joined our company as Corporate Controller in March&nbsp;2000. Prior to
joining us, Ms.&nbsp;Mueller served as Director, General Accounting and Finance Services at Novartis
Nutrition Corporation, then a privately-held division of Novartis AG, for 15&nbsp;years and was
primarily responsible for accounting and financial reporting and financial management.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Kraft joined our company as Vice President of Americas Sales and Marketing in February&nbsp;2003 and
was named Senior Vice President of Sales and Marketing in November&nbsp;2005. Prior to joining us, Mr.
Kraft was Vice President of Marketing for Advanced Switching Communications (ASC), a provider of
broadband access platforms, from June&nbsp;1999 to February&nbsp;2002. From July&nbsp;1998 to October&nbsp;1998, Mr.
Kraft was Vice President of Marketing for NetFax, Inc., a telecommunications company. Mr.&nbsp;Kraft
also previously held the positions of Manager of Product Marketing at 3COM/U.S. Robotics, Vice
President of Marketing for ISDN Systems Corporation, and Group Products Manager for the Internet
access program at Sprint Corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Young joined our company in July&nbsp;2000 as Vice President of Engineering and was named Vice
President of Research and Development and Chief Technical Officer in November&nbsp;2005. In October
2006, Mr.&nbsp;Young was named Senior Vice President of Research and Development and Chief Technical
Officer. Prior to joining us, Mr.&nbsp;Young served as a Vice President for Transcrypt International, a
provider of encryption products, in various
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->76<!-- /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="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 10.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">engineering, sales and marketing positions from February&nbsp;1996 to June&nbsp;2000. Before that, he held
various engineering and management positions at AT&#038;T and AT&#038;T Bell Laboratories from 1986 to 1996.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;15, 2010, our Board of Directors elected Steven E. Snyder to serve as the company&#146;s
Senior Vice President, Chief Financial Officer and Treasurer, effective upon his commencement of
employment, which is expected to be November&nbsp;30, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Snyder, age 54, most recently served as Chief Financial Officer at Gearworks, Inc. from
November&nbsp;2008 to September&nbsp;2009. In August&nbsp;2009, Gearworks, Inc. merged with Xora, Inc. From
October&nbsp;2007 to June&nbsp;2008, he was a General Manager of the storage solutions group at Xiotech
Corporation, a privately held data storage company. From January&nbsp;2003 to October&nbsp;2007, he served
as Chief Financial Officer and Vice President manufacturing and administration at Xiotech
Corporation. Prior to that, Mr.&nbsp;Snyder served as Chief Financial Officer at several companies,
including Ancor Communications, Inc., then a publicly traded developer and manufacturer of fibre
channel switching products for data center networks. Mr.&nbsp;Snyder also spent ten years at Cray
Research, Inc. in progressively responsible financial roles. Earlier roles include seven years in
various financial positions at Control Data Corporation and two years with KPMG Peat Marwick.
</DIV>


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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have in place a &#147;code of ethics&#148; within the meaning of Rule&nbsp;406 of Regulation&nbsp;S-K, which is
applicable to our senior financial management, including specifically our principal executive
officer, principal financial officer and controller. A copy of this code of ethics is included as
an exhibit to this report. We intend to satisfy our disclosure obligations regarding any amendment
to, or a waiver from, a provision of this code of ethics by posting such information on our website
at <U>www.digi.com</U>. We also have a &#147;code of conduct&#148; that applies to all directors, officers and
employees, a copy of which is available through our website (<U>www.digi.com</U>) under the &#147;About us &#151;
Investor Relations &#151; Corporate Governance&#148; caption.
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 11.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>EXECUTIVE COMPENSATION</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Incorporated into this item by reference is the information appearing under the heading
&#147;Compensation of Directors,&#148; &#147;Executive Compensation,&#148; the information regarding compensation
committee interlocks and insider participation under the heading &#147;Proposal No.&nbsp;1 &#151; Election of
Directors&#148; on our Proxy Statement.
</DIV>

<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 12.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Incorporated into this item by reference is the information appearing under the headings &#147;Security
Ownership of Principal Shareholders and Management&#148; and &#147;Equity Compensation Plan Information&#148; in
our Proxy Statement.
</DIV>

<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 13.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Incorporated into this item by reference is the information regarding director independence under
the heading &#147;Proposal No.&nbsp;1 &#151; Election of Directors&#148; and the information regarding related person
transactions under the heading &#147;Related Person Transaction Approval Policy&#148; on our Proxy Statement.
</DIV>

<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 14.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>PRINCIPAL ACCOUNTING FEES AND SERVICES</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Incorporated into this item by reference is the information under &#147;Proposal No.&nbsp;2 &#151; Ratification
of Independent Public Accounting Firm&#148; in our Proxy Statement.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->77<!-- /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">
<A name="122"></A>
</DIV>

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

<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 15.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>EXHIBITS, FINANCIAL STATEMENT SCHEDULES</B></TD>
</TR>
</TABLE>
</DIV>

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Financial Statements and Schedules of the Company (filed as part of this
Annual Report on Form 10-K)</TD>
</TR>

</TABLE>
</DIV>

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Operations for the fiscal years ended September&nbsp;30,
2010, 2009 and 2008</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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Balance Sheets as of September&nbsp;30, 2010 and 2009</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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Cash Flows for the fiscal years ended September&nbsp;30, 2010, 2009
and 2008</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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Stockholders&#146; Equity and Comprehensive Income for the fiscal
years ended September&nbsp;30, 2010, 2009 and 2008</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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Notes to Consolidated Financial Statements</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Schedule of Valuation and Qualifying Accounts</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report of Independent Registered Public Accounting Firm</TD>
</TR>

</TABLE>
</DIV>

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Purchase Agreement dated April&nbsp;28, 2008 among Digi International Limited,
a subsidiary of Digi International Inc., and all of the shareholders of Sarian
Systems Limited (excluding schedules and exhibits which the Registrant agrees to
furnish supplementally to the Securities and Exchange Commission upon request)
(1)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of the Company, as amended (2)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-Laws of the Company</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Rights Agreement, dated as of April&nbsp;22, 2008, between the Company and
Wells Fargo Bank, N.A., 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">Form of Amended and Restated Certificate of Powers, Designations, Preferences
and Rights of Series&nbsp;A Junior Participating Preferred Shares&nbsp;(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. Stock Option Plan as Amended and Restated as of November
27, 2006* (5)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of indemnification agreement with directors and officers of the Company* (6)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Subramanian Krishnan dated March&nbsp;26, 1999* (7)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and Subramanian Krishnan dated
February&nbsp;5, 2001* (8)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement between the Company and Joseph T. Dunsmore dated September
27, 2006* (9)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Employee Stock Purchase Plan, as amended and restated as
of December&nbsp;4, 2009* (10)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->78<!-- /Folio -->
</DIV>

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

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


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 15.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(f)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. 2000 Omnibus Stock Plan, as amended and restated as of
December&nbsp;4, 2009* (11)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(g)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Non-Officer Stock Option Plan, as Amended and Restated
as of November&nbsp;27, 2006 (12)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Director Stock Option Plan (13)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Incentive and Non-Qualified Stock
Option Plan (14)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(j)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. 2001 Stock Option and Incentive Plan (15)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(k)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option Agreement (for grants under
Digi International Inc. Stock Option Plan)* (16)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Lawrence A. Kraft, dated February&nbsp;4, 2003* (17)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and Lawrence A. Kraft dated July&nbsp;30,
2007* (18)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Joel K. Young dated July&nbsp;30, 2007* (19)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(n)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option Agreement (for grants under
Digi International Inc. 2000 Omnibus Stock Plan before January&nbsp;26, 2010)* (20)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(o)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option Agreement (amended form for
grants under Digi International Inc. Omnibus Stock Plan on or after January&nbsp;26,
2010)* (21)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(p)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">English Language Summary of Sale and Leaseback Agreement dated February&nbsp;18, 2008
between Digi International GmbH and Deutsche Structured Finance GmbH &#038; Co.
Alphard KG. (22)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics (23)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Independent Registered Public Accounting Firm</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Powers of Attorney</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief Executive Officer</TD>
</TR>
<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">*</TD>
    <TD>&nbsp;</TD>
    <TD>Management contract or compensatory plan or arrangement required to be filed as an exhibit to this
Form 10-K.</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 2(a) to the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 2008 (File No.&nbsp;1-34033).</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(a) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 1993 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 4(a) to the Company&#146;s Registration Statement on Form 8-A
filed on April&nbsp;25, 2008 (File No.&nbsp;1-34033).</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 4(b) to the Company&#146;s Registration Statement on Form 8-A
filed on April&nbsp;25, 2008 (File No.&nbsp;1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->79<!-- /Folio -->
</DIV>

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

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






<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 15.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)</B></TD>
</TR>
</TABLE>
</DIV>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 6pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;10 to the Company&#146;s Form 10-Q for the quarter ended June
30, 2010 (File no. 1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(k) to the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 1999 (File no. 0-17972)</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;10(e)(i) to the Company&#146;s Form 10-Q for the quarter
ended December&nbsp;31, 2000 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(d) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(10)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(b) to the Company&#146;s Form 10-Q for the quarter ended
December&nbsp;31, 2009 (File no. 1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(11)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-Q for the quarter ended
December&nbsp;31, 2009 (File no. 1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(12)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(g) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(13)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;4.3 to the Company&#146;s Registration Statement on Form S-8
dated February&nbsp;13, 2002 (File no. 333-82672).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(14)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;4.3 to the Company&#146;s Registration Statement on Form S-8
dated February&nbsp;13, 2002 (File no. 333-82670).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(15)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;4.3 to the Company&#146;s Registration Statement on Form S-8
dated February&nbsp;13, 2002 (File no. 333-82668).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(16)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 8-K dated September&nbsp;13, 2004
(File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(17)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(m) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2006 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(18)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-Q for the quarter ended
June&nbsp;30, 2007 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(19)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(b) to the Company&#146;s Form 10-Q for the quarter ended
June&nbsp;30, 2007 (File no. 0-17972).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(20)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(o) to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2008 (File no. 1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(21)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(c) to the Company&#146;s Form 10-Q for the quarter ended
December&nbsp;31, 2009 (File no. 1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(22)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit 10(a) to the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 2008 (File no. 1-34033).</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(23)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference to Exhibit&nbsp;14 to the Company&#146;s Form 10-K for the year ended
September&nbsp;30, 2003 (File no. 0-17972).</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->80<!-- /Folio -->
</DIV>

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

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






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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">DIGI INTERNATIONAL INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">November 29, 2010&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/  Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chairman, President, Chief Executive Officer and Director&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">November 29, 2010&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chairman, President, Chief Executive Officer and Director<BR>
(Principal Executive Officer)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">November 29, 2010&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Brenda L. Mueller
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Brenda L. Mueller&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Corporate Controller and Acting Principal Financial Officer<BR>
(Acting Principal Financial Officer)&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>GUY C. JACKSON</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>KENNETH E. MILLARD</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>AHMED NAWAZ</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">A majority of the Board of Directors*</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>WILLIAM N. PRIESMEYER</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>BRADLEY J. WILLIAMS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left"><DIV style="FONT-size: 3pt; margin-top: 13pt; width: 18%; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt"><DIV style="margin-left:15px; text-indent:-15px">*&nbsp;&nbsp;&nbsp;Joseph T. Dunsmore, by signing his name hereto, does hereby sign this document on behalf of each
of the above named directors of the Registrant pursuant to Powers of Attorney duly executed by such
persons.
</DIV></DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">November 29, 2010&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Attorney-in-fact&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->81<!-- /Folio -->
</DIV>

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

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SCHEDULE II &#151; VALUATION AND QUALIFYING ACCOUNTS</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>DIGI INTERNATIONAL INC.<BR>
(in thousands)</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Increase</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">(Decrease) to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">beginning</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">costs and</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">end of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of period</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">expenses</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Deductions</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">period</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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Valuation account &#151; doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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>
    <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">September&nbsp;30, 2010
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">624</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">132</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">207</TD>
    <TD nowrap valign="top">&nbsp;(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">549</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">September&nbsp;30, 2009
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">697</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">(1</TD>
    <TD nowrap valign="top">)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">72</TD>
    <TD nowrap valign="top">&nbsp;(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">624</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">September&nbsp;30, 2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">479</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">308</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">90</TD>
    <TD nowrap valign="top">&nbsp;(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">697</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 nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Reserve for future returns and pricing adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD 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>
    <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">September&nbsp;30, 2010
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">1,058</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">43</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">(5</TD>
    <TD nowrap valign="top">)(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">1,106</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">September&nbsp;30, 2009
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">1,369</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">(264</TD>
    <TD nowrap valign="top">)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">47</TD>
    <TD nowrap valign="top">&nbsp;(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">1,058</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">September&nbsp;30, 2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">1,442</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">9</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">82</TD>
    <TD nowrap valign="top">&nbsp;(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">1,369</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

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

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Uncollectible accounts charged against allowance, net of recoveries</TD>
</TR>

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

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Adjustments and recoveries</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt"><!-- Folio -->82<!-- /Folio -->
</DIV>



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


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT INDEX</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="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Page</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Purchase Agreement dated April&nbsp;28, 2008 among
Digi International Limited, a subsidiary of Digi
International Inc., and all of the shareholders of
Sarian Systems Limited (excluding schedules and
exhibits which the Registrant agrees to furnish
supplementally to the Securities and Exchange
Commission upon request)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of the
Company, as amended
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-Laws of the Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Rights Agreement, dated as of April&nbsp;22, 2008,
between the Company and Wells Fargo Bank, N.A., as
Rights Agent
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and Restated Certificate of Powers,
Designations, Preferences and Rights of Series&nbsp;A
Junior Participating Preferred Shares
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Stock Option Plan as Amended
and Restated as of November&nbsp;27, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of indemnification agreement with directors and
officers of the Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Subramanian
Krishnan dated March&nbsp;26, 1999
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and
Subramanian Krishnan dated February&nbsp;5, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement between the Company and Joseph
T. Dunsmore dated September&nbsp;27, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Employee Stock Purchase
Plan, as amended and restated as of December&nbsp;4, 2009
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(f)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. 2000 Omnibus Stock Plan, as
amended and restated as of December&nbsp;4, 2009
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(g)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Digi International Inc. Non-Officer Stock Option
Plan, as Amended and Restated as of November&nbsp;27,
2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Director
Stock Option Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by
Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. Amended and Restated 1998 Incentive
and Non-Qualified Stock Option Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(j)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NetSilicon, Inc. 2001 Stock Option and Incentive Plan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(k)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option
Agreement (for grants under Digi International Inc.
Stock Option Plan)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Lawrence A. Kraft,
dated February&nbsp;4, 2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)(i)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Agreement between the Company and
Lawrence A. Kraft dated July&nbsp;30, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement between the Company and Joel K. Young
dated July&nbsp;30, 2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->83<!-- /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">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Description</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Page</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->



<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(n)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option Agreement (for grants under Digi International Inc.
2000 Omnibus Stock Plan before January&nbsp;26, 2010)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(o)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Grant of Stock Options and Option
Agreement (amended form for grants under Digi
International Inc. 2000 Omnibus Stock Plan on or
after January&nbsp;26, 2010)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(p)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">English Language Summary of Sale and Leaseback
Agreement dated February&nbsp;18, 2008 between Digi
International GmbH and Deutsche Structured Finance
GmbH &#038; Co. Alphard KG.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Incorporated by Reference</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Independent Registered Public Accounting
Firm
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Powers of Attorney
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rule&nbsp;13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
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    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Section&nbsp;1350 Certification
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed Electronically</TD>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 3(b)</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">BY-LAWS OF<BR>
DIGI INTERNATIONAL INC.<BR>
AS AMENDED AND RESTATED AS OF NOVEMBER 23, 2010
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1.01. <U>Registered Office</U>. The Corporation shall maintain a registered office
and registered agent within the State of Delaware at such place within such State as may be
designated from time to time by the Board of Directors of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1.02. <U>Other Offices</U>. The Corporation also may have offices at such other
places both within and without the State of Delaware as the Board of Directors may from time to
time determine.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.01. <U>Place of Meetings</U>. Meetings of stockholders may be held at the principal
executive offices of the Corporation or at such other place, either within or without the State of
Delaware, as may be designated by the Board of Directors or the chief executive officer of the
Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.02. <U>Annual Meetings and Advance-Notice of Business, Other than Director
Nominations and Elections</U>. An annual meeting of stockholders shall be held in each calendar
year for the election of directors on such date and at such time as shall be designated from time
to time by the Board of Directors. At any annual meeting of stockholders of the Corporation, the
proposal of business (other than the nomination and election of directors, which shall be subject
to Section&nbsp;3.13) to be considered by the stockholders may be made (i)&nbsp;pursuant to the Corporation&#146;s
notice of the meeting (or any supplement thereto), (ii)&nbsp;by or at the direction of the Board of
Directors, or (iii)&nbsp;by any stockholder of record of the Corporation entitled to vote on the
business at the meeting who complies with the notice procedures hereinafter set forth in this
Section.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Timing of Notice</U>. For such business to be properly brought before any annual
meeting by a stockholder, a stockholder&#146;s notice of any such business to be conducted at such
meeting must be delivered to the Secretary of the Corporation, or mailed to and received at
the principal executive office of the Corporation, not less than one hundred twenty (120)&nbsp;days
before the first anniversary of the date of the preceding year&#146;s annual meeting of
stockholders. If, however, the date of the annual meeting of stockholders is more than thirty
(30)&nbsp;days before or sixty (60)&nbsp;days after such anniversary date, notice by a stockholder shall
be timely only if so delivered or so mailed and received not less than one hundred twenty
(120)&nbsp;days before such annual meeting or, if later, within ten (10)&nbsp;days after the first
public announcement of the date of such annual meeting. Except to the extent otherwise
required by law, the adjournment of an annual meeting of stockholders shall not commence a new
time period for the giving of a stockholder&#146;s notice as required above. Nothing in this
Section shall reduce or otherwise affect the notice period required under Rule&nbsp;14a-8 under the
Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;) in order for a stockholder to
have the right, under Rule&nbsp;14a-8, to include or have disseminated or described in the
Corporation&#146;s proxy statement or on the proxy card of the Board of Directors for any annual
meeting of stockholders any stockholder proposal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Content of Notice</U>. A stockholder&#146;s notice to the Corporation for an annual
meeting of stockholders shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i)&nbsp;a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting, (ii)&nbsp;the name and
address, as they appear on the Corporation&#146;s books, of the stockholder proposing such business
and the name and address of any
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">beneficial owner on whose behalf the proposal is made, (iii)&nbsp;the information required by
clause (b)(y)(ii) of Section&nbsp;3.13 with respect to such stockholder and any such beneficial
owner, (iv)&nbsp;any material interest in such business of the stockholder or any such beneficial
owner, and (v)&nbsp;a representation and other appropriate evidence that the stockholder is a
holder of record of shares of stock entitled to vote on such business at the meeting, will
continue to be a holder of record of shares of stock entitled to vote on such business through
the date of the meeting, and intends to appear in person or by proxy at the meeting to make
the proposal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Consequences of Failure to Give Proper Notice</U>. Notwithstanding anything in
these By-Laws to the contrary, no business (other than the nomination and election of
directors, which shall be subject to Section&nbsp;3.13) shall be conducted at any annual meeting
except in accordance with the procedures set forth in this Section. The presiding Officer of
the meeting shall, if the facts warrant, determine that business was not properly brought
before the meeting in accordance with the procedures described in this Section and, if the
presiding Officer should so determine, the presiding Officer shall so declare to the meeting,
and any such business not properly brought before the meeting shall not be transacted. Nothing
in this Section shall be deemed to preclude discussion by any stockholder of any business
properly brought before the meeting in accordance with these By-Laws.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Public Announcement</U>. For purposes of this Section and Section&nbsp;3.13, &#147;public
announcement&#148; means disclosure (i)&nbsp;when made in a press release reported by the Dow Jones News
Service, Associated Press, or comparable national news service, (ii)&nbsp;when filed in a document
publicly filed by the Corporation with the Securities and Exchange Commission pursuant to
Section&nbsp;13, 14, or 15(d) of the Exchange Act, or (iii)&nbsp;when mailed as the notice of the
meeting (or any supplement) pursuant to Section&nbsp;2.04 of the By-Laws.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Compliance with Laws</U>. Notwithstanding the foregoing provisions of this
Section, a stockholder shall also comply with all applicable requirements of Delaware law and
the Exchange Act and the rules and regulations thereunder with respect to the matters set
forth in this Section and in Section&nbsp;3.13.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.03. <U>Special Meetings</U>. Unless otherwise specifically provided by law or the
Certificate of Incorporation, a special meeting of stockholders, for any purpose or purposes, may
be called only by the Chairman or the President and shall be called by either such officer upon the
written request of a majority of the Board of Directors or by a committee of the Board of Directors
which has been duly designated by the Board of Directors, and whose powers and authority, as
expressly provided in a resolution of the Board of Directors, include the power to call such
meetings. Such request shall state the purpose or purposes of the proposed meeting. If the
authorized officers fail to cause such meeting to be called within thirty (30)&nbsp;days after receipt
of such request and held within ninety (90)&nbsp;days after receipt of such request, the directors
making the request may call the meeting by giving notice as provided in these By-Laws at the
expense of the Corporation. Business transacted at any special meeting shall be limited to the
purposes stated in the notice of the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.04. <U>Notice of Meetings</U>. A written notice stating the place, date and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is
called, or a separate written notice of the posing of such information on an electronic network
(such as a website), shall be personally delivered or mailed, postage prepaid, not less than ten
(10)&nbsp;nor more than sixty (60)&nbsp;days before the date of such meeting to each stockholder of record of
the Corporation entitled to vote at such meeting at the stockholder&#146;s mailing address shown upon
the records of the Corporation. Service of notice is complete upon mailing.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.05. <U>Waiver of Notice</U>. Notice of any annual or special meeting of
stockholders may be waived either before, at or after such meeting in a writing signed by the
person or persons entitled to the notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transacting of any business because the
meeting is not lawfully called or convened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.06. <U>Quorum</U>. At each meeting of stockholders, except where otherwise provided
by law or the Certificate of Incorporation or these By-Laws, the holders of a majority of the
outstanding capital stock entitled to vote at the meeting, present in person or represented by
proxy, shall constitute a quorum. If a quorum is once present at the meeting, the stockholders may
continue to transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.07. <U>Adjourned Meetings</U>. The stockholders present, though less than a quorum,
may, by majority vote, adjourn the meeting from time to time to a later day or hour or to another
place. If the adjournment is for more than thirty (30)&nbsp;days, or if after adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. Otherwise, notice of any adjourned meeting
need not be given if the time and place thereof are announced at the meeting at which the
adjournment is taken. At an adjourned meeting at which a quorum is present or represented by proxy,
any business may be transacted which might have been transacted at the meeting as originally
convened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.08. <U>Voting</U>. Unless otherwise provided in the Certificate of Incorporation,
each stockholder entitled to vote at any meeting of stockholders shall have one vote for each share
of stock having voting power upon the matter in question which is held by such stockholder and
registered in the stockholder&#146;s name on the books of the Corporation as of the applicable record
date. All elections of directors shall be conducted by written ballot, unless the Certificate of
Incorporation otherwise provides. The vote upon any other question before a meeting need not be by
written ballot, and need not be conducted by inspectors, unless otherwise determined by the Board
of Directors or the officer presiding at the meeting. At all meetings of stockholders for the
election of directors a plurality of the votes cast shall be sufficient to elect such directors.
All other elections and questions at a meeting shall be decided by a majority vote of the number of
shares entitled to vote represented at the meeting at the time of the vote except where otherwise
required by statute, the Certificate of Incorporation or these By-Laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.09. <U>Proxies</U>. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him or her by proxy in any manner, including
without limitation via telephone, Internet or such other manner as permitted by Section&nbsp;212 of the
Delaware General Corporation Law, as amended from time to time, provided that such authorization
sets forth or contains information from which the Corporation can determine that the authorization
was granted by the stockholder. If the authorization is granted in a manner other than in a written
form, the proxy holder shall provide such reasonable verification as required by the Corporation.
If any such authorization designates two or more persons to act as proxies, a majority of such
persons present at the meeting, or, if only one shall be present, then that one, shall have and may
exercise all of the powers conferred by such authorization upon all of the persons so designated
unless such authorization shall otherwise provide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.10. <U>Fixing Date for Determination of Stockholders of Record</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) In order that the Corporation may determine the stockholders entitled (i)&nbsp;to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or (ii)&nbsp;to express
consent to corporate action in writing without a meeting, or (iii)&nbsp;to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix,
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">in advance, a record date, which shall be (X)&nbsp;not more than sixty (60)&nbsp;nor less than ten
(10)&nbsp;days before the date of any such meeting; (Y)&nbsp;not more than ten (10)&nbsp;days after the date
upon which the resolution fixing the record date for any written action is adopted by the
Board of Directors; and (Z)&nbsp;not more than sixty (60)&nbsp;days prior to any other action.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If no record date is fixed:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, (A)&nbsp;when no prior action by the Board of
Directors is necessary, shall be the day on which the first signed written consent
setting forth the action taken or proposed to be taken is delivered to the Corporation,
and (B)&nbsp;when prior action by the Board of Directors is necessary, shall be at the close
of business on the day on which the Board of Directors adopts the resolution taking such
prior action.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the resolution
relating thereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2.11. <U>Stockholder List</U>. The officer of the Corporation who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10)&nbsp;days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period of at least ten
(10)&nbsp;days prior to the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list also shall be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">III. BOARD OF DIRECTORS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.01. <U>General Powers; Organization</U>. The business of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-Laws directed or required to be exercised or done by the
stockholders. The Board of Directors may annually elect a Chairman of the Board from among its
members who shall preside at its meetings, or in his or her absence the President shall so preside,
or in his or her absence a chairman chosen at the meeting shall so preside. The Secretary shall act
as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting. Any meeting of the Board of Directors may be held within
or without the State of Delaware.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.02. <U>Number, Qualification and Term of Office</U>. The number of directors
constituting the Board of Directors shall be fixed from time to time by resolution of the Board of
Directors. The directors shall be elected at the annual meeting of the stockholders, except as
provided in Section&nbsp;3.03 of these By-Laws, and each director elected shall hold office for the term
elected and until his or her successor is duly elected and qualified. Any director may resign at
any time upon giving written notice to the Corporation. Directors need not be stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.03. <U>Vacancies</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then in office, in
their sole discretion and whether or not constituting less than a quorum, and the directors so
chosen shall hold office until the next election of the class for which such directors shall
have been chosen and until their successors to such class are duly elected and qualified, or
until their earlier resignation, retirement or removal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Whenever the holders of any class or classes of stock or series thereof are entitled
to elect one or more directors by the provisions of the Certificate of Incorporation of the
Corporation, vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.04. <U>Regular Meetings</U>. Regular meetings of the Board of Directors may be held
without notice at such time and place as may be designated from time to time by the Board of
Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.05. <U>Special Meetings</U>. Special meetings of the Board of Directors may be
called from time to time by the Chairman, if any, or the President, and, upon request by any two
directors, shall be called by the Chairman or the President.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.06. <U>Notice of Special Meetings</U>. Notice of each special meeting of the Board
of Directors stating the place, date and hour of the meeting shall be given to each director by
mail not less than forty-eight (48)&nbsp;hours, or personally or by telephone, telegram, telex or cable
not less than twenty-four (24)&nbsp;hours, before the date and hour of the meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.07. <U>Waiver of Notice</U>. Notice of any meeting of the Board of Directors may be
waived either before, at or after such meeting in a writing signed by each director or directors to
whom the notice was not duly given. Attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except when the director attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.08. <U>Quorum</U>. Unless otherwise specifically provided by law, the Certificate
of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the
total number of directors shall constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.09. <U>Committees of Directors</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Board of Directors may, by resolution adopted by a majority of the total number
of directors, designate one or more committees, each committee to consist of one or more of
the directors of the Corporation and to have such name as may be determined by the Board of
Directors. The Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting of the
committee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any committee, to the extent allowed by law and provided in the resolution
designating the committee, may exercise the powers of the Board of Directors in the management
of the business and affairs of the Corporation and may authorize the corporate seal, if any,
to be affixed to all papers that may require it.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each committee shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required. Unless the Board of Directors otherwise provides, each
committee may make, alter and repeal rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to these By-Laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.10. <U>Conference Communications</U>. Directors may participate in any meeting of
the Board of Directors, or of any duly constituted committee thereof, by means of a conference
telephone conversation or other comparable method of communication by which all persons
participating in the meeting can hear and communicate with each other. For the purpose of
establishing a quorum and taking any action at the meeting, such directors participating pursuant
to this Section&nbsp;3.10 shall be deemed present in person at the meeting; and the place of the meeting
shall be the place of origination of the conference telephone conversation or other comparable
method of communication.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.11. <U>Action by Written Consent of Directors</U>. Any action required or permitted
to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a
meeting if all directors or committee members consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or the committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3.12. <U>Compensation</U>. The Board of Directors shall have the authority to fix the
compensation of directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section&nbsp;3.13</U>. <U>Advance-Notice of Stockholder-Sponsored Director Nominations</U>.
No person (other than a person nominated by or at the direction of the Board of Directors) shall be
eligible for election as a director at any annual or special meeting of stockholders unless timely
notice is given in writing of such nomination by a stockholder of record of the Corporation
entitled to vote for the election of directors at the meeting who complies with the notice
procedures hereinafter set forth in this Section.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Timing of Notice</U>. To be timely, a stockholder&#146;s notice of nominations to be
made (i)&nbsp;at an annual meeting of stockholders must be delivered to the Secretary of the
Corporation, or mailed to and received at the principal executive office of the Corporation,
not less than one hundred twenty (120)&nbsp;days before the first anniversary of the date of the
preceding year&#146;s annual meeting of stockholders; provided, however, that if the date of the
annual meeting of stockholders is more than thirty (30)&nbsp;days before or sixty (60)&nbsp;days after
such anniversary date, notice by a stockholder shall be timely only if so delivered or so
mailed and received not less than one hundred twenty (120)&nbsp;days before such annual meeting or,
if later, within ten (10)&nbsp;days after the first public announcement of the date of such annual
meeting, and (ii)&nbsp;in the case of a special meeting of stockholders called for the purpose of
electing directors, within ten (10)&nbsp;days after the first public announcement of the date
</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: 2%">of such special meeting. Except to the extent otherwise required by law, the adjournment
of a meeting of stockholders shall not commence a new time period for the giving of a
stockholder&#146;s notice as described above. Nothing in this Section shall reduce or otherwise
affect the notice period required under Rule&nbsp;14a-11 under the Exchange Act, if such Rule
14a-11 becomes effective, in order for a stockholder to have the right, under Rule&nbsp;14a-11, to
include or have disseminated or described in the Corporation&#146;s proxy statement or on the proxy
card of the Board of Directors for any meeting of stockholders any nomination by any
stockholder or stockholders of a director or directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Content of Notice</U>. A stockholder&#146;s notice to the Corporation of nominations
for a meeting of stockholders shall set forth (x)&nbsp;as to each person whom the stockholder
proposes to nominate for election as a director: (i)&nbsp;such person&#146;s name, (ii)&nbsp;all information
relating to such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or that is otherwise required, pursuant to
Regulation&nbsp;14A under the Exchange Act, and (iii)&nbsp;such person&#146;s signed written consent to being
a nominee and to serving as a director if elected; and (y)&nbsp;as to the stockholder giving the
notice: (i)&nbsp;the name and address, as they appear on the Corporation&#146;s books, of such
stockholder and the name and address of any beneficial owner on whose behalf the nomination is
made, (ii) (A)&nbsp;the number of shares of stock of the Corporation of each class or series that
is beneficially owned by such stockholder or any such beneficial owner, (B)&nbsp;any option,
warrant, convertible security, stock appreciation right, swap, or similar right with an
exercise or conversion privilege or a settlement payment or mechanism at a price related to
any class or series of shares of stock of the Corporation or with a value derived in whole or
in part from the value of any class or series of shares of stock of the Corporation, whether
or not such instrument or right shall be subject to settlement in the underlying class or
series of capital stock of the Corporation or otherwise (a &#147;Derivative Instrument&#148;) owned
beneficially by such stockholder or any such beneficial owner and any other opportunity to
profit or share in any profit derived from any increase or decrease in the value of shares of
the Corporation, (C)&nbsp;any proxy, contract, arrangement, understanding, or relationship pursuant
to which such stockholder or any such beneficial owner has a right to vote any shares of the
Corporation, (D)&nbsp;any short interest in any security of the Corporation (for purposes of these
By-Laws, a person shall be deemed to have a &#147;short interest&#148; in a security if such person has
the opportunity to profit or share in any profit derived from any decrease in the value of the
subject security), (E)&nbsp;any rights to dividends on the shares of stock of the Corporation owned
beneficially by such stockholder or any such beneficial owner that are separated or separable
from the underlying shares of stock of the Corporation, (F)&nbsp;any proportionate interest in shares of stock of the Corporation or Derivative Instruments held, directly or indirectly, by
a general or limited partnership in which such stockholder or any such beneficial owner is a
general partner or, directly or indirectly, beneficially owns an interest in a general partner
and (G)&nbsp;any performance-related fees (other than an asset-based fee) that such stockholder or
any such beneficial owner is entitled to based on any increase or decrease in the value of shares of stock of the Corporation or Derivative Instruments, if any, as of the date of such
notice, including without limitation any such interests held by members of such stockholder&#146;s
or any such beneficial owner&#146;s immediate family sharing the same household (which information
shall be supplemented by such stockholder not later than ten (10)&nbsp;days after the record date
for the meeting to disclose such ownership as of the record date), (iii)&nbsp;a description of any
material relationships, including financial transactions and compensation, between the
stockholder and the proposed nominee(s), and (iv)&nbsp;a representation and other appropriate
evidence that the stockholder is a holder of record of shares of stock of the Corporation
entitled to vote for the election of directors, will continue to be a holder of record of shares of stock entitled to vote for the election of directors through the date of the
meeting, and intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Consequences of Failure to Give Proper Notice</U>. Notwithstanding anything in
these By-Laws to the contrary, no stockholder-sponsored nominees shall be eligible for
election as a director of the Corporation except in accordance with the procedures set forth
in this Section. The presiding Officer of the meeting shall, if the facts warrant, determine
that the nomination(s) were not properly brought before the meeting in accordance with the
procedures described in this Section and, if the presiding Officer should so determine, the
presiding Officer shall so declare to the meeting, and the defective nomination(s) shall be
disregarded.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.01. <U>Number</U>. The Board of Directors shall elect a President, a Secretary and
a Treasurer, and it may, if it so determines, elect a Chairman of the Board from among its members.
The Board of Directors also may choose one or more Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers or any other officers or agents as the Board of
Directors by a majority vote of the total number of directors may designate. Any person may hold
two or more offices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.02. <U>Election, Term of Office and Qualifications</U>. The Board of Directors
shall elect the officers of the Corporation, who shall hold their offices for such terms and shall
exercise such powers and perform such duties not inconsistent with these By-Laws as shall be
determined from time to time by the Board of Directors. All officers of the Corporation shall hold
their offices until their respective successors are elected and qualified, or until their
respective offices are eliminated by vote of the majority of all directors, or until their earlier
resignation, retirement or removal. Officers may be, but need not be, directors. Any officer may
resign at any time upon written notice to the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.03. <U>Compensation</U>. The salaries of the officers of the Corporation shall be
fixed from time to time by the Board of Directors or by the chief executive officer if authorized
by the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.04. <U>Removal and Vacancies</U>. Any officer may be removed from office, with or
without cause, by a majority vote of the total number of directors, but such removal shall be
without prejudice to the contract rights of such officer, if any, with the Corporation. Any vacancy
occurring in any office of the Corporation may be filled by the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.05. <U>Chief Executive Officer</U>. The Board of Directors shall designate the
Chairman or the President as the chief executive officer of the Corporation. If there be no
Chairman, the President shall be the chief executive officer. The chief executive officer shall
have the general powers and duties of management and supervision usually vested in and imposed upon
the chief executive officer of a corporation. The chief executive officer shall preside at all
meetings of the stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.06. <U>Chairman of the Board</U>. The Chairman, if one is elected, shall preside at
all meetings of the Board of Directors. During the absence or disability of the President, the
Chairman shall exercise all the powers and discharge all the duties of the President.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.07. <U>President</U>. The President, subject to the control of the Board of
Directors and the Chairman (if the Chairman is the chief executive officer of the Corporation),
shall have general supervision of the business of the Corporation, shall maintain the stock ledger
and prepare the stockholder list as required by these By-Laws, and shall see that all orders and
resolutions of the Board of Directors are carried into effect. During the absence or disability of
the Chairman or if there be no Chairman, the President shall preside at all meetings of the Board
of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.08. <U>Vice-Presidents</U>. During the absence or disability of the Chairman and
the President, the Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">designated by the Board of Directors or, in the absence of any designation, in the order they
were first elected as Vice-Presidents) shall perform the duties and have the authority of the
President.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.09. <U>Secretary</U>. The Secretary shall keep the minutes of the meetings of the
stockholders, the Board of Directors and any committees in a book to be kept for that purpose and
shall perform such other ministerial duties as the Board of Directors of the Corporation may
direct. The Secretary shall duly give notice of all meetings of the stockholders, special meetings
of the Board of Directors and meetings of its committees, if any. The Secretary shall not be deemed
an executive officer of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.10. <U>Treasurer</U>. The Treasurer shall keep accurate accounts of all moneys of
the Corporation received or disbursed. He or she shall deposit all moneys, drafts and checks in the
name of and to the credit of the Corporation in such banks and depositaries as a majority of the
whole Board of Directors shall from time to time designate. The Treasurer shall have power to
endorse for deposit all notes, checks and drafts received by the Corporation. He or she shall
disburse the funds of the Corporation as ordered by the Board of Directors, making proper vouchers
therefor. The Treasurer shall render to the Board of Directors or the chief executive officer of
the Corporation, whenever required, an account of all his or her transactions as Treasurer and of
the financial condition of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4.11. <U>Authority and Other Duties</U>. All officers of the Corporation shall be
subject to the supervision and direction of the Board of Directors and, in addition to the
foregoing authority and duties, all officers of the Corporation shall respectively have such
authority and perform such other duties in the management of the business of the Corporation as may
be designated from time to time by the Board of Directors. Unless prohibited by a resolution
approved by the affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board may, without the approval of the Board, delegate some or all of the duties
and powers of his or her office to other persons.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.01. <U>Indemnification</U>. The Corporation shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to such extent, as required
or permitted by subsections (a)&nbsp;through (e)&nbsp;of Section&nbsp;145 of the Delaware General Corporation Law,
as amended from time to time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.02. <U>Insurance</U>. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability asserted against and
incurred by such person in or arising from that capacity, whether or not the Corporation would
otherwise be required or permitted to indemnify the person against the liability. The Company shall
not be obligated under these By-Laws to make any payment in connection with any claim made against
any person if and to the extent that such person has actually received payment therefor under any
insurance policy or policies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.03. <U>Indemnification Upon a Change of Control</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If a Change in Control (as defined in this Section&nbsp;5.03) has occurred and the person
seeking indemnification so requests, a determination of whether such person is eligible for
indemnification under Section&nbsp;5.01 hereof shall be made in a written opinion rendered by
independent legal counsel chosen by the person seeking indemnification and not reasonably
objected to by the Board of Directors (whose fees and expenses shall be paid by the
Corporation) and such determination shall be binding on the Corporation.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) For purposes of Section&nbsp;5.03(a), &#147;independent legal counsel&#148; shall mean legal counsel
other than an attorney, or a firm having associated with it an attorney, who has been retained
by or has performed services for the Corporation or the person seeking indemnification within
the previous three years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) For purposes of Section&nbsp;5.03(a), a &#147;Change in Control&#148; shall be deemed to have
occurred if:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a majority of the directors of the Corporation shall be persons other than
persons (A)&nbsp;who were directors of the Corporation at July&nbsp;1, 1989, (B)&nbsp;for whose election
proxies shall have been solicited by the Board of Directors, or (C)&nbsp;who are then serving
as directors appointed by the Board of Directors to fill vacancies on the Board of
Directors caused by newly-created directorships or the death or resignation (but not
removal) of a director;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any &#147;person&#148; (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the &#147;Act&#148;)), other than the Corporation, a
subsidiary of the Corporation or the person seeking indemnification, and other than a
person who acquires or becomes the beneficial owner (as defined in Rule&nbsp;13d-3 under the
Act, or any successor rule thereto), directly or indirectly, of twenty percent or more of
the then outstanding shares of voting stock of the Corporation as a result of the merger
of Digiboard, Inc., a Minnesota corporation, with and into the Corporation, together with
its &#147;affiliates&#148; and &#147;associates&#148; (as those terms are defined in Rule&nbsp;12b-2 under the
Act), or any group of persons acting in concert, not including the person seeking
indemnification, acquires or becomes a beneficial owner (as so defined in Rule&nbsp;13d-3),
directly or indirectly, of twenty percent or more of the then outstanding shares of
voting stock of the Corporation; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) the stockholders of the Corporation approve a definitive agreement or plan to
(A)&nbsp;merge or consolidate the Corporation with or into another corporation (other than (1)
a merger or consolidation with a subsidiary of the Corporation, or (2)&nbsp;a merger in which
the Corporation is the surviving corporation and no outstanding voting stock of the
Corporation (other than fractional shares) held by stockholders immediately prior to the
merger is converted into cash, securities, or other property), (B)&nbsp;exchange, pursuant to
a statutory exchange of shares of voting stock of the Corporation held by stockholders of
the Corporation immediately prior to the exchange, shares of one or more classes or
series of voting stock of the Corporation for shares of another corporation, (C)&nbsp;sell or
otherwise dispose of all or substantially all of the assets of the Corporation (in one
transaction or a series of transactions), or (D)&nbsp;liquidate or dissolve the Corporation,
unless a majority of the voting stock (or the voting equity interest) of the surviving
corporation or of any corporation (or other entity) acquiring all or substantially all of
the assets of the Corporation (in the case of a merger, consolidation or disposition of
assets) or the Corporation (in the case of a statutory share exchange) is, immediately
following the merger, consolidation, statutory share exchange or disposition of assets,
beneficially owned by the person seeking indemnification or a group of persons, including
the person seeking indemnification, acting in concert; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) the Corporation enters into an agreement in principle or a definitive agreement
relating to an event described in clause (i), (ii)&nbsp;or (iii)&nbsp;above which ultimately
results in an event described therein, or a tender or exchange offer or proxy contest is
commenced which ultimately results in an event described therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.04. <U>Good Faith Defined, Etc</U>. For purposes of any determination of whether a
person is entitled to indemnification, such person shall be deemed to have acted in good faith and
in a manner he or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">she reasonably believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had no reasonable cause to believe his
or her conduct was unlawful, if such person relied on the records or books of account of the
Corporation or other enterprise, or on information supplied to him or her by the officers of the
Corporation or other enterprise, or on information or records given or reports made to the
Corporation or other enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or other enterprise. The term &#147;other
enterprise&#148; as used in this Section&nbsp;5.04 shall mean any enterprise other than the Corporation,
including any corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise as to which such person is or was serving at the request of the Corporation as a
director, officer, employee, agent or trustee. The provisions of this Section&nbsp;5.04 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to
have met the applicable standard of conduct set forth in Section&nbsp;145 of the Delaware General
Corporation Law, as amended from time to time.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.05. <U>Right to Indemnification Upon Application; Procedure Upon Application;
Etc</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Any indemnification under these By-Laws shall be made no later than forty-five (45)
days after receipt by the Corporation of the written request of the director or officer, or
former director or officer, unless a determination is made within said 45-day period in
accordance with Section&nbsp;5.03 that such person has not met the applicable standard of conduct.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The right to indemnification or expense advances under these By-Laws shall be
enforceable by the director or officer, or former director or officer, in any court of
competent jurisdiction. Following a Change in Control (as defined in Section&nbsp;5.03(c)), the
burden of proving that indemnification is not appropriate shall be on the Corporation. Neither
the absence of any prior determination that indemnification is proper in the circumstances,
nor a prior determination that indemnification is not proper in the circumstances, shall be a
defense to the action or create a presumption that the director or officer, or former director
or officer, has not met the applicable standard of conduct. The expenses (including attorneys&#146;
fees and expenses) incurred by the director or officer, or former director or officer, in
connection with successfully establishing his or her right to indemnification, in whole or in
part, in any such action (or in any action or claim brought by him or her to recover under any
insurance policy or policies referred to in Section&nbsp;5.02) also shall be indemnified by the
Corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If any person is entitled under any provision of these By-Laws to indemnification by
the Corporation for some or a portion of expenses, judgments, fines, penalties or amounts paid
in settlement incurred by him or her, but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify such person for the portion of such expenses,
judgments, fines, penalties and amounts to which he or she is entitled.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.06. <U>Certain Persons Not Entitled to Indemnification</U>. Notwithstanding any
other provision of these By-Laws, no person shall be entitled to indemnification or expense
advances under these By-Laws with respect to any action, suit, proceeding or claim brought or made
by him or her against the Corporation, other than an action, suit, proceeding or claim seeking, or
defending such person&#146;s right to, indemnification and/or expense advances pursuant to these By-Laws
or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.07. <U>Non-Exclusivity and Survival of Indemnification</U>. Except as otherwise
provided in Section&nbsp;5.06, but notwithstanding any other provision of these By-Laws, it is the
policy of the Corporation that indemnification and expense advances shall be made to the fullest
extent permitted by law, and, accordingly, in the event of any change in law, by legislation or
otherwise, permitting greater indemnification and/or expense advances, the provisions of these
By-Laws shall be construed so as to
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">require such greater indemnification and/or expense advances. The provisions of these By-Laws
shall not be deemed to preclude the indemnification of any person whom the Corporation has the
power to indemnify under the provisions of the General Corporation Law of the State of Delaware or
otherwise. All rights to indemnification and advancement of expenses under these By-Laws shall be
deemed to be provided by a contract between the Corporation and the director or officer who serves
in such capacity at any time while these By-Laws are in effect. Any repeal or modification of the
indemnification provisions of these By-Laws shall not affect any rights or obligations then
existing. The Corporation may provide additional indemnification rights to a director or officer of
the Corporation by separate agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.08. <U>Successors; Meaning of &#147;Corporation&#148;</U>. The indemnification provisions of
these By-Laws shall be binding upon and enforceable against any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the business and/or
assets of the Corporation. For purposes of these By-Laws, but subject to the provisions of any
agreement relating to any merger or consolidation of the kind referred to in clause (a)&nbsp;below or of
any agreement relating to the acquisition of any corporation of the kind referred to in clause (b)
below, references to &#147;the Corporation&#148; shall include (a)&nbsp;any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger with the Corporation which, if
its separate existence had continued, would have had power and authority to indemnify its directors
and officers, so that any person who is or was a director or officer of such constituent
corporation, or is or was serving at the request of such constituent corporation as a director,
officer, employee or trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same position under the provisions of these
By-Laws with respect to the Corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued; and (b)&nbsp;any corporation of which at least a
majority of the voting power (as represented by its outstanding stock having voting power generally
in the election of directors) is owned directly or indirectly by the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5.09. <U>Severability</U>. The indemnification provisions of these By-Laws shall be
severable in the event that any provision hereof (including any provision within a single section,
subsection, clause, paragraph or sentence) is held invalid, void or otherwise unenforceable on any
ground by any court of competent jurisdiction. In the event of any such holding, the remaining
indemnification provisions of these By-Laws shall continue in effect and be enforceable to the
fullest extent permitted by law.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.01. <U>Certificated and Uncertificated Shares</U>. Shares of stock of the
Corporation shall be represented by certificates, provided that the Board of Directors may provide
by resolution or resolutions that some or all of any or all classes or series of stock may be
uncertificated shares. Any such resolution shall not apply to shares represented by a certificate
until such certificate is surrendered to the Corporation. Certificates representing shares shall be
in such form as shall be prescribed by the Board of Directors, certifying the number of shares
owned by the holder. Shares represented by certificates shall be numbered in the order in which
they shall be issued and shall be signed in the name of the Corporation by the Chairman, the
President or a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, and the seal of the Corporation, if any, shall be affixed thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.02. <U>Issuance of Stock</U>. The Board of Directors is authorized to cause to be
issued stock of the Corporation up to the full amount authorized by the Certificate of
Incorporation in such amounts and for such consideration as may be determined by the Board of
Directors. No shares shall be allotted except in consideration of cash, labor, personal property,
or real property, or leases thereof, or of an amount transferred from surplus to stated capital
upon a stock dividend. At the time of such allotment of stock, the Board of Directors shall state
its determination of the fair value to the Corporation in monetary terms of any consideration other
than cash for which shares are allotted. The amount of consideration to be
</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: 6pt">received in cash or otherwise shall not be less than the par value of the shares so allotted.
Stock so issued shall be fully paid and nonassessable. Treasury shares may be disposed of by the
Corporation for such consideration as may be fixed by the Board of Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.03. <U>Partly Paid Stock</U>. The Corporation may issue the whole or any part of
its stock as partly paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each certificate issued to represent any such partly paid stock,
or upon the stock ledger in the case of uncertificated shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated. The Board of
Directors may, from time to time, demand payment in respect of each share of stock not fully paid,
of such sum of money as the necessities of the business may, in the judgment of the Board of
Directors, require, not exceeding in the whole the balance remaining unpaid on such stock, and such
sum so demanded shall be paid to the Corporation at such times and by such installments as the
Board of Directors shall direct.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.04. <U>Registered Stockholders</U>. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.05. <U>Transfers of Stock</U>. Transfers of stock shall be made on the books of the
Corporation only by the record holder of such stock, or such holder&#146;s legal representative or duly
authorized attorney-in-fact, and, in the case of stock represented by a certificate, upon surrender
of the certificate or the certificates for such stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate
and record the transaction upon its books. No new certificate or certificates shall be issued in
exchange for any existing certificate until such certificate shall have been so cancelled, except
in cases provided for in Section&nbsp;6.06.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.06. <U>Lost, Stolen or Destroyed Certificates</U>. Any stockholder claiming a
certificate for stock to be lost, stolen or destroyed shall make an affidavit of that fact in such
form as the Corporation may require and shall, if the Corporation so requires, give the Corporation
a bond of indemnity in form, in an amount, and with one or more sureties satisfactory to the
Corporation, to indemnify the Corporation against any claims which may be made against it on
account of the alleged loss, theft or destruction of the certificate or issuance of such new
certificate. A new certificate may then be issued in the same tenor and for the same number of
shares as the one claimed to have been lost, stolen or destroyed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6.07. <U>Facsimile Signatures</U>. Whenever any certificate is countersigned by a
transfer agent or by a registrar other than the Corporation or one of its employees, then the
signatures of the officers or agents of the Corporation may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been placed on any such
certificate shall cease to be such officer, transfer agent or registrar before such certificate is
issued, it nevertheless may be issued by the Corporation as though the person who signed such
certificate or whose facsimile signature or signatures had been placed thereon were such officer,
transfer agent or registrar at the date of issue.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.01. <U>Dividends</U>. The Board of Directors may declare at any regular or special
meeting dividends from the Corporation&#146;s surplus, or if there be none, out of its net profits for
the current fiscal year and/or the preceding fiscal year, in such amounts as in their opinion the
condition of the affairs of the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /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">Corporation shall render it advisable unless otherwise restricted by law. Dividends may be
paid in cash, in property or in shares of capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.02. <U>Interested Directors and Officers</U>. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the Corporation and any
other corporation, partnership, association or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest, shall be void or
voidable solely for that reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his, her or their votes are counted for such purpose,
if: (a)&nbsp;the material facts as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though the disinterested directors be less
than a quorum; or (b)&nbsp;the material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled to vote thereon,
and the contract or transaction is specifically approved in good faith by vote of the stockholders;
or (c)&nbsp;the contract or transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common
or interested directors may be counted in determining the presence of a quorum at a meeting of the
Board of Directors or of a committee which authorizes the contract or transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.03. <U>Voting Securities Held by the Corporation</U>. Unless otherwise ordered by
the Board of Directors, powers of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman or the President, and either such officer may, in
the name of and on behalf of the Corporation, take all such action as such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of other corporations in
which the Corporation may hold securities, and at any such meeting such officer shall possess and
may exercise any and all rights and powers incident to the ownership of such securities that the
Corporation might have possessed and exercised if it had been present. The Board of Directors may
from time to time confer like powers upon any other person or persons.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.04. <U>Execution of Instruments</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to
the business and affairs of the Corporation shall be signed on behalf of the Corporation by
the Chairman, the President or any Vice President, or by such other person or persons as may
be designated from time to time 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) If a document must be executed by persons holding different offices or functions and
one person holds such offices or exercises such functions, that person may execute the
document in more than one capacity if the document indicates each such capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.05. <U>Advances</U>. The Corporation may, without a vote of the directors, advance
money to its directors, officers or employees to cover expenses that can reasonably be anticipated
to be incurred by them in the performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.06. <U>Fiscal Year</U>. The fiscal year end of the Corporation shall be September
30 or such other date as may be fixed from time to time by resolution of the Board of Directors.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.07. <U>Corporate Seal</U>. The corporate seal, if one is adopted by the Board of
Directors, shall be circular in form and shall have inscribed thereon the name of the Corporation,
the word &#147;Delaware&#148; and the words &#147;Corporate Seal.&#148; The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise placed on any document
requiring it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7.08. <U>Power to Amend</U>. These By-Laws may be altered, amended or repealed or new
By-Laws may be adopted as provided in the Certificate of Incorporation of the Corporation.
</DIV>


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




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<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>c61561exv21.htm
<DESCRIPTION>EX-21
<TEXT>
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<TITLE>exv21</TITLE>
</HEAD>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 21</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Subsidiaries of the Company
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi International (HK)&nbsp;Ltd.
</DIV>

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

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

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

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

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

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

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

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Digi m2m Solutions India Pvt. Ltd.
</DIV>



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




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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>c61561exv23.htm
<DESCRIPTION>EX-23
<TEXT>
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<HEAD>
<TITLE>exv23</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 23</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-144873, 333-144872, 333-00099, 333-23857, 333-82674, 333-82670, 333-82672, 333-169427,
333-169428) of Digi International Inc. of our report dated November&nbsp;23, 2010 relating to the
consolidated financial statements, financial statement schedule and the effectiveness of internal
control over financial reporting, which appears in this Form 10-K.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">/s/ PricewaterhouseCoopers LLP<BR>
Minneapolis, Minnesota<BR>
November&nbsp;29, 2010

</DIV>


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



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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>5
<FILENAME>c61561exv24.htm
<DESCRIPTION>EX-24
<TEXT>
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<TITLE>exv24</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;24
</DIV>


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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
23<SUP style="FONT-size: 85%; vertical-align: text-top">rd</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
23<SUP style="FONT-size: 85%; vertical-align: text-top">rd</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Brenda L. Mueller
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Brenda L. Mueller&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

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


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
12<SUP style="FONT-size: 85%; vertical-align: text-top">th</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Guy C. Jackson
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Guy C. Jackson&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
11<SUP style="FONT-size: 85%; vertical-align: text-top">th</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Kenneth E. Millard
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Kenneth E. Millard&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
14<SUP style="FONT-size: 85%; vertical-align: text-top">th</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Ahmed Nawaz
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Ahmed Nawaz&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
11<SUP style="FONT-size: 85%; vertical-align: text-top">th</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ William N. Priesmeyer
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">William N. Priesmeyer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

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


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">Power of Attorney<BR>
of Director and/or Officer
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned director and/or officer of Digi International Inc., a Delaware corporation,
does hereby make, constitute and appoint Joseph T. Dunsmore and Brenda L. Mueller, and either of
them, the undersigned&#146;s true and lawful attorneys-in-fact, with power of substitution, for the
undersigned and in the undersigned&#146;s name, place and stead, to sign and affix the undersigned&#146;s
name as such director and/or officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation with the Securities
and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended,
with all exhibits thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein expressly granted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned&#146;s hand this
11<SUP style="FONT-size: 85%; vertical-align: text-top">th</SUP> day of November, 2010.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Bradley J. Williams
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Bradley J. Williams&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


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



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.A
<SEQUENCE>6
<FILENAME>c61561exv31wa.htm
<DESCRIPTION>EX-31.A
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31wa</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 31(a)</B>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Joseph T. Dunsmore, certify that:
</DIV>


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

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) evaluated the effectiveness of the registrant&#146;s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) disclosed in this report any change in the registrant&#146;s internal
control over financial reporting that occurred during the registrant&#146;s
most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant&#146;s internal
control over financial reporting; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit
committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date:  November 29, 2010&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President, Chief Executive Officer, and Chairman&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.B
<SEQUENCE>7
<FILENAME>c61561exv31wb.htm
<DESCRIPTION>EX-31.B
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31wb</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<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="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 31(b)</B>
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Brenda L. Mueller, certify that:
</DIV>



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

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;The registrant&#146;s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) evaluated the effectiveness of the registrant&#146;s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) disclosed in this report any change in the registrant&#146;s internal
control over financial reporting that occurred during the registrant&#146;s
most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant&#146;s internal
control over financial reporting; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit
committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date:  November 29, 2010&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Brenda L. Mueller
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Brenda L. Mueller&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Corporate Controller and Acting Principal Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>8
<FILENAME>c61561exv32.htm
<DESCRIPTION>EX-32
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<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="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 32</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U>CEO AND CFO CERTIFICATION OF PERIODIC REPORT</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, each of the undersigned certifies that:
</DIV>


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


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Annual Report on Form 10-K of the Company for the year ended September&nbsp;30, 2010 (the
&#147;Report&#148;) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)); and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">     /s/ Joseph T. Dunsmore
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Joseph T. Dunsmore&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President, Chief Executive Officer, Chairman and Director&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">     /s/ Brenda L. Mueller
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Brenda L. Mueller&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Corporate Controller and Acting Principal Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
