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<SEC-DOCUMENT>0001193125-08-159662.txt : 20080729
<SEC-HEADER>0001193125-08-159662.hdr.sgml : 20080729
<ACCEPTANCE-DATETIME>20080729090652
ACCESSION NUMBER:		0001193125-08-159662
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20080724
ITEM INFORMATION:		Results of Operations and Financial Condition
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20080729
DATE AS OF CHANGE:		20080729

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VASCO DATA SECURITY INTERNATIONAL INC
		CENTRAL INDEX KEY:			0001044777
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
		IRS NUMBER:				364169320
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-24389
		FILM NUMBER:		08974300

	BUSINESS ADDRESS:	
		STREET 1:		1901 SOUTH MYERS ROAD
		STREET 2:		SUITE 210
		CITY:			OAKBROOK TERRACE
		STATE:			IL
		ZIP:			60181
		BUSINESS PHONE:		6309328844

	MAIL ADDRESS:	
		STREET 1:		1919 S HIGHLAND AVE
		STREET 2:		STE 118 C
		CITY:			LOMBARD
		STATE:			IL
		ZIP:			60148
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>d8k.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML><HEAD>
<TITLE>Form 8-K</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P
STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P STYLE="margin-top:3px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>SECURITIES AND EXCHANGE COMMISSION
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="3"><B>WASHINGTON, D.C. 20549 </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P
STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>FORM 8-K </B></FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:12px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="3"><B>CURRENT REPORT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="3"><B>PURSUANT TO SECTION 13 OR 15(d) OF </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="3"><B>THE SECURITIES EXCHANGE ACT OF 1934 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B>Date of Report (Date of earliest event reported): July&nbsp;24, 2008 </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P
STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="6"><B>VASCO Data Security
International, Inc. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Exact name of registrant as specified in charter) </B></FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

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<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Delaware</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>000-24389</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>36-4169320</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(State or other jurisdiction</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>of incorporation)</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Commission File Number)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(IRS Employer</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="1"><B>Identification No.)</B></FONT></P></TD></TR>
</TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="99%"></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>1901 South Meyers Road, Suite 210</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>Oakbrook Terrace, Illinois 60181</B></FONT></P></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Address of principal executive offices) (Zip Code)</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Registrant&#146;s telephone number, including area code: (630)&nbsp;932-8844 </B></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N/A </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(Former name or former address,
if changed since last report) </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below): </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) </FONT></TD></TR></TABLE> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) </FONT></TD></TR></TABLE> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) </FONT></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P
STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><B>ITEM&nbsp;2.02</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B>Results of Operations and Financial Condition </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The information
contained in this Form 8-K shall not be deemed &#147;filed&#148; for purposes of Section&nbsp;18 of the Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;), or incorporated by reference in any filing under the Securities Act
of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On July&nbsp;24, 2008, VASCO Data
Security International, Inc. (VASCO) issued a press release providing a financial update for the second quarter and six months ended June&nbsp;30, 2008. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form
8-K. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On July&nbsp;24, 2008, VASCO held a conference call with investors to discuss VASCO&#146;s earnings and results of operations for the second quarter
and six months ended June&nbsp;30, 2008. A transcript of the conference call is furnished as Exhibit 99.2 to this Current Report on Form 8-K. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The press
release and the comments by VASCO during the conference call contained a non-GAAP financial measure within the meaning of the Securities and Exchange Commission&#146;s Regulation G.&nbsp;For purposes of Regulation G, a non-GAAP financial measure is
a numerical measure of a registrant&#146;s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most
directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have
the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The press release contained a
reference to EBITDA and provided a reconciliation of EBITDA to net income. EBITDA, which is earnings before interest, taxes, depreciation and amortization, is computed by adding back net interest expense, income tax expense, depreciation expense,
and amortization expense to net income as reported. </FONT></P>

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<TR>
<TD WIDTH="9%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><B>ITEM&nbsp;9.01</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B>Financial Statements and Exhibits </B></FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(d)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Exhibits. The following Exhibits are furnished herewith: </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="84%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="5%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="92%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:28pt"><FONT FACE="Times New Roman" SIZE="1"><B>Exhibit<BR>Number</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="1"><B>Description</B></FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">99.1</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Press release, dated July 24, 2008.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">99.2</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Transcript of July 24, 2008 Earnings Conference Call.</FONT></TD></TR>
</TABLE>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>SIGNATURE </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. </FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Date: July&nbsp;24, 2008</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">VASCO Data Security International, Inc.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Clifford K. Bown</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Clifford K. Bown</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Chief Financial Officer</FONT></TD></TR>
</TABLE>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>EXHIBIT INDEX </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">The following Exhibits are furnished herewith: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="7%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="90%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:39pt"><FONT FACE="Times New Roman" SIZE="1"><B>Exhibit&nbsp;No.</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="1"><B>Description</B></FONT></P></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">99.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Press release, dated July 24, 2008.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">99.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Transcript of July 24, 2008 Earnings Conference Call.</FONT></TD></TR>
</TABLE>
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>dex991.htm
<DESCRIPTION>PRESS RELEASE
<TEXT>
<HTML><HEAD>
<TITLE>Press Release</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>EXHIBIT 99.1 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">VASCO Reports Results for Second Quarter and First Six Months of 2008. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Revenues for the second quarter 2008 increased 9% over second quarter
2007 and were the highest in the Company&#146;s history; Operating income decreased 4% over second quarter 2007. Updated guidance for full-year 2008 provided. Financial results for the second quarter of 2008 to be discussed on conference call today
at 10:00 a.m. E.D.T. </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">OAKBROOK TERRACE, IL., and ZURICH, Switzerland, July&nbsp;24, 2008&#151;VASCO Data Security International, Inc. (Nasdaq: VDSI) (
www.vasco.com) today reported financial results for the second quarter and six months ended June&nbsp;30, 2008. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Revenue for the second quarter of 2008
increased 9% to $35.4 million from $32.4 million for the second quarter of 2007, and for the first six months of 2008, increased 9% to $64.3 million from $58.8 million for the first six months of 2007. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Net income for the second quarter of 2008 was $7.5 million, or $0.20 per diluted share, an increase of $0.6 million, or 9%, from $6.9 million, or $0.18 per diluted
share, for the comparable period in 2007. Net income for the first six months of 2008 was $12.4 million, or $0.32 per diluted share, an increase of $0.5 million, or 5%, from $11.8 million, or $0.31 per diluted share, for the comparable period in
2007. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Other Financial Highlights: </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Gross profit was $25.4 million, or 72% of revenue, for the second quarter of 2008 and $45.4 million, or 71% of revenue, for the first six months of 2008. Gross
profit was $20.7 million, or 64% of revenue for the second quarter of 2007 and $38.2 million, or 65% of revenue, for the first six months of 2007. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Operating expenses for the second quarter and first six months of 2008 were $16.4 million and $30.6 million, respectively, an increase of 46% from $11.2 million
reported for the second quarter of 2007 and an increase of 40% from $21.9 million reported for the first six months of 2007. Operating expenses for the second quarter and first six months of 2008 included $0.8 million and $1.5 million, respectively,
related to stock-based incentives. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Operating income for the second quarter and first six months of 2008 was $9.0 million and $14.9 million, respectively, a decrease of $0.4 million, or 4%, from $9.4
million reported for the second quarter of 2007 and a decrease of $1.4 million, or 9%, from $16.3 million reported for the first six months of 2007. Operating income, as a percentage of revenue, for the second quarter and first six months of 2008
was 26% and 23%, respectively, compared to 29% and 28% for the comparable periods in 2007. </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Earnings before interest, taxes, depreciation and amortization (EBITDA) was $9.9 million and $16.9 million for the second quarter and first six months of 2008,
respectively, a decrease of 3% from $10.2 million reported for the second quarter of 2007 and a decrease of 5% from $17.7 million reported for the first six months of 2007. </FONT></P></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Net cash balances, cash balances less borrowing under VASCO&#146;s line of credit, at June&nbsp;30, 2008 totaled $42.1 million compared to $47.8 million and $38.8
million at March&nbsp;31, 2008 and December&nbsp;31, 2007, respectively. </FONT></P></TD></TR></TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operational and Other Highlights: </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">VASCO won 516 new customers in Q2 2008 (79 new banks and 437 new enterprise security customers). For the first six months of 2008, VASCO won 1,107 new customers
(150 banks and 957 enterprise security customers). </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Banco Itau (Brazil) secures more than 1.6&nbsp;million end users with VACMAN Controller/Digipass GO3 </FONT></P></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Independent Bankers&#146; Bank (U.S.) secures online banking with VACMAN Controller/Digipass GO6 </FONT></P></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Mizuho Bank (Japan), Intesa Sanpaolo (Italy) and Banco Itau (Brazil) receive VASCO&#146;s Market Vision Award </FONT></P></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Digipass integrated into SonicWall SSL-VPN </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">VASCO opens subsidiary in Mumbai India </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">VASCO expands US Channel Partner Program </FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">VASCO ranks 5th in Fortune Small Business Top 100 and 14th in BusinessWeek&#146;s Hot Growth Companies top 50. </FONT></P></TD></TR></TABLE> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Guidance for full-year 2008: </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">VASCO updated its full-year 2008
guidance as follows: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Revenue growth of 15% to 25% for the full-year 2008 over full-year 2007, a reduction from its previous guidance of 10 percentage points in each end of the range,
</FONT></P></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Gross margins as a percentage of revenue of 60% to 68% for full-year 2008, which is unchanged from previous guidance, and </FONT></P></TD></TR></TABLE> <P
STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="5%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">Operating margins as a percentage of revenue of 20% to 25% for full-year 2008, which is also unchanged from previous guidance. </FONT></P></TD></TR></TABLE> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">&#147;We are pleased with the progress we saw in the business in Q2,&#148; stated T. Kendall Hunt, Chairman&nbsp;&amp; CEO. &#147;Not only did we report a record level
of revenues for a quarter, but we also increased our deferred revenues and saw a strong order flow throughout the quarter. The current order flow reinforces our belief that our growth rates over 2007 will accelerate in the second half of the year.
We are, however, reducing our revenue guidance for two primary reasons. One is to more fully consider the impact of our business strategies where a larger portion of our business activity relates to recurring software revenue, which may be deferred
and recognized in future periods. The second is to reflect a more conservative outlook for the full year given the uncertainty of the world economies.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">&#147;We are continuing to make investments in our infrastructure and continuing our aggressive hiring plan,&#148; said Jan Valcke, VASCO&#146;s President and COO. &#147;Our business mix is evolving favorably, as expressed by the increase
in gross margins. It is our goal to accelerate our growth in enterprise security and other non-traditional markets while strengthening our position in the banking sector.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Cliff Bown, Executive Vice President and CFO added, &#147;The continued strong operating performance has allowed us to both invest strongly in the business and strengthen our balance sheet. While our net cash balance
decreased $5.7 million or 12% during the quarter, our working capital increased $7.8 million or 13% from March&nbsp;31, 2008. Days Sales Outstanding (DSO) in net accounts receivable increased to approximately 83 days at June&nbsp;30, 2008 from 67
days and 76 days at March&nbsp;31, 2008 and December&nbsp;31, 2007, respectively.&#148; </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Conference Call Details </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In
conjunction with this announcement, VASCO Data Security International, Inc. will host a conference call today, July&nbsp;24, 2008, at 10:00 a.m. EDT - 16:00h CET. During the Conference Call, Mr.&nbsp;Ken Hunt, CEO, Mr.&nbsp;Jan Valcke, President and
COO, and Mr.&nbsp;Cliff Bown, CFO, will discuss VASCO&#146;s results for the second quarter 2008. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">To participate in this Conference Call, please dial one
of the following numbers: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">USA/Canada: 888 562 3356 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">International: +1 973 582 2700 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Participants should reference Conference ID - 54791512#. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Conference Call is also available in listen-only mode on <U>www.vasco.com</U>. Please log on 15 minutes before the start of the Conference Call in order to download
and install any necessary software. The recorded version of the Conference Call will be available on the VASCO website 24 hours a day. </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>VASCO Data Security International, Inc. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>CONSOLIDATED STATEMENTS OF OPERATIONS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(in thousands, except per share data)
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(unaudited) </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="72%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Three months ended<BR>June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Six months ended<BR>June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">35,409</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32,442</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">64,337</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">58,847</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cost of goods sold</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,007</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,755</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18,895</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,630</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gross profit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25,402</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,687</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45,442</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38,217</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating costs:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Sales and marketing</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,036</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,659</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,737</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,749</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Research and development</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,966</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,076</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,656</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,999</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">General and administrative</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,230</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,249</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,765</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,636</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Amortization of purchased intangible assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">124</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">253</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">396</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">511</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total operating costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,356</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,237</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">30,554</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,895</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,046</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,450</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,888</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,322</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest income, net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">277</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">534</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">138</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other income (expense), net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(43</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(8</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">217</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(45</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income before income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,280</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,522</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,639</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,415</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Provision for income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,822</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,666</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,284</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,596</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,458</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,856</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,355</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,819</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income per share:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.20</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.19</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.33</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.32</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Diluted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.20</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.18</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.32</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.31</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Weighted average common shares outstanding:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37,130</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36,879</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37,120</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36,722</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Diluted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38,198</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38,228</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38,253</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38,115</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
</TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>VASCO Data Security International, Inc. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>CONSOLIDATED BALANCE SHEETS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>(in thousands) </B></FONT></P> <P
STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="82%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>June&nbsp;30,</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>December&nbsp;31,<BR>2007</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(unaudited)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>ASSETS</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Current assets:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash and equivalents</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42,076</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">38,833</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable, net of allowance for doubtful accounts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">32,384</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25,721</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Inventories</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,833</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,076</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prepaid expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,550</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,712</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Foreign sales tax receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,661</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,919</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">258</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">476</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other current assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">175</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">180</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total current assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">94,937</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">78,917</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Property and equipment, net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,140</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Goodwill, net of accumulated amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15,361</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">14,319</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Intangible assets, net of accumulated amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,109</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,295</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other assets, net of accumulated amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,647</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,005</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Total assets</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">119,054</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100,676</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Current liabilities:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,395</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,757</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,200</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,608</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued wages and payroll taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,493</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,330</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income taxes payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,283</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,008</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,703</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,776</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total current liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">28,074</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">26,479</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred warranty</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">226</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">309</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued compensation</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">723</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,281</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,206</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">457</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred tax liability</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">542</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">611</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Total liabilities</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">30,771</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,137</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Stockholders&#146; equity:</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Common Stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">37</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Additional paid-in capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65,597</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">64,734</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,920</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">565</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated other comprehensive income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,729</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,203</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Total stockholders&#146; equity</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">88,283</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">71,539</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Total liabilities and stockholders&#146; equity</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">119,054</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100,676</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD></TR>
</TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Reconciliation of Earnings Before Interest, Taxes, Depreciation and Amortization (&#147;EBITDA&#148;) to net income:
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="69%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Three months</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>ended June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>Six months</B></FONT><br><FONT FACE="Times New Roman" SIZE="1"><B>ended June&nbsp;30,</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2008</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="1"><B>2007</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(in&nbsp;thousands,&nbsp;unaudited)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>(in&nbsp;thousands,&nbsp;unaudited)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">EBITDA</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,896</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,207</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,917</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,761</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest income, net</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">277</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">534</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">138</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Provision for income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,822</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,666</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,284</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,596</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation and amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(893</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(765</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,812</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,484</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD VALIGN="bottom">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:1px solid #000000">&nbsp;</TD>
<TD>&nbsp;</TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,458</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,856</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,355</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,819</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR STYLE="font-size:1px">
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom">&nbsp;&nbsp;</TD>
<TD VALIGN="bottom" STYLE="border-top:3px double #000000">&nbsp;</TD>
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</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">EBITDA is a non-GAAP financial measure within the meaning of applicable U.S. Securities and Exchange Commission
rules and regulations. We use EBITDA as a measure of performance, a simplified tool for use in communicating our performance to investors and analysts and for comparisons to other companies within our industry. As a performance measure, we believe
that EBITDA presents a view of our operating results that is most closely related to serving our customers. By excluding interest, taxes, depreciation and amortization we are able to evaluate performance without considering decisions that, in most
cases, are not directly related to meeting our customers&#146; requirements and were either made in prior periods (e.g., depreciation and amortization), or deal with the structure or financing of the business (e.g., interest) or reflect the
application of regulations that are outside of the control of our management team (e.g., taxes). Similarly, we find that the comparison of our results to those of our competitors is facilitated when we do not need to consider the impact of those
items on our competitors&#146; results. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance
reported in accordance with accounting principles generally accepted in the United States.&nbsp;While we believe that EBITDA, as defined above, is useful within the context described above, it is in fact incomplete and not a measure that should be
used to evaluate our full performance or our prospects. Such an evaluation needs to consider all of the complexities associated with our business including, but not limited to, how past actions are affecting current results and how they may affect
future results, how we have chosen to finance the business and how regulations and the other aforementioned items affect the final amounts that are or will be available to shareholders as a return on their investment. Net income determined in
accordance with U.S. GAAP is the most complete measure available today to evaluate all elements of our performance. Similarly, our Consolidated Statement of Cash Flows, which will be filed as part of our annual report on Form 10-K, provides the full
accounting for how we have decided to use resources provided to us from our customers, lenders and shareholders. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>About VASCO</B>: VASCO is a leading supplier of strong authentication and e-signature solutions and services
specializing in Internet Security applications and transactions.&nbsp;VASCO has positioned itself as a global software company for Internet Security serving a customer base of more than 7,600 companies in more than 100 countries, including more than
1,150 international financial institutions. VASCO&#146;s prime markets are the financial sector, enterprise security, e-commerce and e-government. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Forward
Looking Statements </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Statements made in this news release that relate to future plans, events or performances are forward-looking statements. Any statement
containing words such as &#147;believes,&#148; &#147;anticipates,&#148; &#147;plans,&#148; &#147;expects,&#148; and similar words, is forward-looking, and these statements involve risks and uncertainties and are based on current expectations.
Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Reference is made to our public
filings with the U.S. Securities and Exchange Commission for further information regarding VASCO and our operations. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">For more information contact:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Jochem Binst, +32 2 609 97 40, jbinst@vasco.com </FONT></P>
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<DESCRIPTION>TRANSCRIPT OF JULY 24, 2008 EARNINGS CONFERENCE CALL
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>EXHIBIT 99.2 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">VASCO Data Security International, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Transcript of the July&nbsp;24, 2008 Earnings Conference Call
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>CORPORATE PARTICIPANTS </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>VASCO Data Security International Inc. - Founder, Chairman, CEO </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Jan Valcke </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>VASCO Data Security International Inc. - President, COO </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Cliff Bown </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>VASCO Data Security International Inc. - EVP, CFO </I></FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>CONFERENCE CALL PARTICIPANTS </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Friedman, Billings, Ramsey Group, Inc. - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Robert Breza
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>RBC Capital Markets - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan
Ruykhaver </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>ThinkPanmure LLC - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Brian
Freed </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Morgan Keegan - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Nick Andrews
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Lazard Capital Markets - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Sean Jackson
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Avondale Partners - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ed Ching
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Brailey - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Andrew Abrams
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Avian Securities - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel </B>
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Soleil Securities - Analyst </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Scott Zeller
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Needham and Company - Analyst </I></FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>PRESENTATION
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Good morning and welcome to the VASCO
Data Security International Inc., Second Quarter 2008 Earnings Conference Call. It is now my pleasure to introduce your host, T. Kendall Hunt, Founder, Chairman, and CEO. Sir, you may begin. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Thank you. Good morning, everyone. For those listening in from Europe, good afternoon, and from Asia, good evening. My name is Ken Hunt and I&#146;m the Chairman, Founder, and CEO of VASCO Data Security International
Inc. On the call with me today are Jan Valcke our President and Chief Operating Officer, and Cliff Bown, our EVP and Chief Financial Officer. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Before we
begin the conference call, I need to brief all of you on forward-looking statements. Statements made in this conference call that relate to future plans, events, or performances are forward-looking statements. Any statement containing words such as
believes, anticipates, plans, expects, and similar words is forward-looking, and these statements involve risks and uncertainties and are based on current expectations. Consequently, actual results could differ materially from the expectations
expressed in these forward-looking statements. I direct your attention to the Company&#146;s filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties in this regard. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Today we&#146;re going to review the results for the second quarter of 2008. As always, we will host a question and answer session after the conclusion of
management&#146;s prepared remarks. If possible, I&#146;d like to budget one hour total for this conference call. If you can limit your questions to one or two, it would be appreciated. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">First, I&#146;d like to address revenue for second quarter 2008. Revenues for the second quarter were $35.4 million, an increase of 9% over second quarter of 2007. It was also our 22nd consecutive positive quarter in
terms of operating income. Our gross profit for the quarter was 72% of revenue and our operating income was 25.5% of revenue. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">There were several points worthy of note in the second quarter. First and most apparent is the fact that the reported
revenues were the best in the Company&#146;s history. Second, our deferred revenues increased approximately $1.5 million during the quarter. The majority of that increase reflects revenues for additional product that was shipped in the second
quarter where the revenue will be realized over the life of the contract with our customer. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Third is the fact that we experienced strong order intake or
bookings, much of which occurred in May and June. As you know, the hardware components of our authentication offerings are often custom manufactured, incorporating our customer&#146;s corporate color and logo. This means that they are not sitting on
a shelf waiting to be delivered. However, with VASCO&#146;s very flexible and capable manufacturing partners, we were able to respond quickly to the surge of orders and will be recording a major portion of these revenues in July of the current
quarter. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">New accounts sold on the second quarter continued at a very high level. During the quarter we sold an additional 516 new accounts including 79
new banks and 437 new enterprise security customers. This compares to the year earlier quarter in which we sold 113 new banks and 518 new enterprise security customers. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">We now have approximately 1,150 banks and 6,500 enterprise security customers in more than 100 countries. In addition to banking, our customers include corporations, Internet companies, and federal, state, and local
governments. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Some of the highlights for Q2 2008 include Banco Itau in Brazil chose VASCO to secure more than 1.6&nbsp;million end users with VACMAN
controller and DIGIPASS Go 3. Independent Bankers Bank in the US chose VASCO to secure its online banking with VACMAN controller and DIGIPASS Go 6. Mizuho Bank of Japan, and Intesa Sanpaolo, Italy, and Banco Itau, Brazil, received VASCO&#146;s
Market Vision Award. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We launched our retail store to offer VASCO products directly to end-users. We announced DIGIPASS for SonicWall SSL VPN to secure
EMEA corporations. VASCO opened it&#146;s subsidiary in Mumbai, India. VASCO expanded its US channel partner program. And last, VASCO was ranked fifth in Fortune&#146;s Small Business Top 100 and 14th in BusinessWeek&#146;s Hot Growth Companies Top
50. VASCO&#146;s gaining more recognition as a leader in the strong authentication area as evidenced by the BusinessWeek and Fortune rankings. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Currently,
VASCO&#146;s image is that of a leading provider of one-time password authentication to the financial sector. This is gratifying but not necessarily accurate. We&#146;re also making significant progress across a wide variety of online and Internet
based transactions and applications. And it&#146;s not just for securing financial transactions. It&#146;s securing patient medical records, it&#146;s securing citizens&#146; government Ids, it&#146;s securing student records, it&#146;s securing
Internet gamers valuable characters. We can talk more about this in the Q&amp;A session. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are establishing and expanding our brand with our full option
all-terrain authentication strategy. VASCO combines all of its authentication products, solutions, and services on one and unique platform &#151; VACMAN controller. Our server family consists of VACMAN controller, Identikey for the companies that
want a full authentication server, and aXs GUARD as an authentication appliance for smaller corporations who want plug and play authentication. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are
seeing a growing interest in our other authentication functionalities such as e-signatures. Globally, man-in-the-middle attacks are on the rise. E-signatures are a perfect tool to counter man-in-the-middle security threats. Currently we have several
million end-users utilizing our e-signature technology. We expect that this trend will continue and even accelerate even in the United States. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">With over
6,500 global customer references, we are well established in the enterprise security sector. The market and our competitors will be seeing a lot more of VASCO in this area. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">As a conclusion, we can state that VASCO offers the broadest range of strong authentication solutions in the sector for every application and for any company or institution. Our business outlook and performance remain
strong on a global scale. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">At this time I&#146;d like to introduce Jan Valcke, VASCO&#146;s President and Chief Operating Officer. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Thank you, Ken. Ladies and gentlemen, we come to you to be pleased with the performance of VASCO in the area of products market and certainly its skilled and motivated people. Based upon more and more Internet based
applications, and the inherent risk of fraud, we are seeing some important evolutions in the use of VASCO&#146;s products and solutions. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As Ken said, all
over the world the threat of man-in-the-middle attacks is growing. Man-in-the-middle are lurking on the Internet and trying to hijack your transaction. This fraud scheme jeopardizes the entire e-banking and e-commerce sector. VASCO offers the
solution to disarm the man-in-the-middle with its e-signatures. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Globally we see that the interest in our soft and hardware e-signature solutions is
growing quickly, both with existing and new customers. Our server family, VACMAN, Identikey, and aXs GUARD give us a kind of reach we never had before. From now on, any company, from the smallest SME to the largest multi-national can use the full
array of VASCO dedication solutions. Our server approach works and we see attraction for our new server models both in the direct business and in the channel. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">We keep investing strongly in the success of our software product range. As you know, software sales contribute substantially to our margin. We see some very encouraging signs from different application-driven niches. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our markets are evolving positively. Our banking market is doing well on a worldwide scale. Our push into enterprise security is proving to be successful, creating high
value and recurrent revenue. This has a very positive influence on our business mix, hence our high gross margins this quarter. In addition, we see very encouraging signs in a number of geographical markets in the e-gaming, e-government, e-health,
and e-education verticals. The fact that we keep expanding our worldwide presence with offices and people allow us to grab such opportunities directly. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We have detected some important global market trends, which will allow us to sustain our growth in the longer-term. The
first one &#151; going mobile. On the client side, the revolution in the mobile road is continuing. PDAs and SmartPhones get more and more processing power. Mobile Internet connections are becoming faster. This leads to the birth of new
expectations. Users expect to be able to connect wherever they are. This also leads to new applications such as mobile banking, mobile gaming, mobile commerce, et cetera, et cetera. With a strong software authentication offering at the client side,
VASCO is well positioned to benefit from this evolution. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Number two, the infrastructure. The secure infrastructure. Ever more people are accessing the
Internet and its applications via unsecured open devices such as public PCs, digital TV, mobile phones, and much more. These tools are very vulnerable to outside threats and fraud schemes. As a result, the application and infrastructure providers
are obliged to harness their system in order to protect their heavy investments in this new business channel. Again, VASCO with its mature and market-leading server offering is well positioned to benefit from this evolution. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Number three, the virtual life. The success of so-called virtual life programs is growing every day. People invest incredible high amounts of time, energy, and money in
order to nurture their avatar and raise it properly. In a number of cases, avatars get kidnapped or stolen. Users can buy their avatars back by paying ransoms. Or they have to start all over again. Such emerging fraud cases can damage the entire
virtual life industry. Luckily a number of visionary companies are aware of this danger and have already acted. With its vast experience and cutting edge authentication solution, VASCO is well positioned to benefit from this evolution. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our long-term investment in solutions, markets, and infrastructure will allow VASCO to speed up its evolution to watch as software and outsourced service company.
With regard to the people, the most important asset of every company and certainly at VASCO, we can say that our efforts are successful. Our seal academy is gaining momentum training VASCO people, partners, and third parties. This way we expand our
global network of VASCO&#146;s 75 specialists, and we are strengthen our ability to take advantage of every business opportunity wherever it may appear. Also we keep investing in the development of our managers and employees in order to be able to
let the Company evolve to the next stage in its existence. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Finally, I told you in the past that we need more people to fuel our growth. It is a pleasure
to tell you that we are on track with our goal plans in that field. Thank you. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder,
Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you, Jan. At this time I&#146;d like to introduce Cliff Bown, VASCO&#146;s EVP and Chief Financial Officer. Cliff?
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Thanks, Ken and welcome to everyone on the call. As noted earlier by Ken, revenues for the second quarter of 2008 were $35.4 million, an increase of $3 million or 9% over the second quarter of 2007. For the first six
months, revenues were $64.3 million, an increase of $5.5 million or 9% over the comparable period in 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The increase in revenue for the second quarter
and the first six months reflected modest increases from the banking market and significant increases in the enterprise security market. Revenues from the banking market for both the second quarter and first six months of 2008 increased 3% from the
same period in 2007. Revenues for the second quarter and first six months of 2008 increased 51% and 49% respectively from the enterprise security market. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">It should also be noted that the comparison of revenues was positively impacted by the weaker US dollar in 2008. We estimate that revenues in the second quarter and first six months of 2008 were approximately $2 million and $4 million
higher respectively than they would have been had the exchange rates in 2008 been the same as in 2007. In both periods, revenues were approximately 6% higher than they would have been had the exchange rates in 2007 &#151; 2008 been the same as in
2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The percentage of revenue coming from enterprise security market has increased substantially in 2008 when compared to 2007. The distribution of our
revenue in the second quarter of 2008, between our two primary markets was approximately 83% from banking and 17% from enterprise security. This compares to 88% from banking and 12% from enterprise security in Q2 of 2007. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">For the first six months of 2008, 82% of our revenue was from banking and 18% was from enterprise security and compares to 87% from banking and 13% from enterprise
security for the first six months of 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our revenues continue to come predominantly from outside the United States. The geographic distribution of our
revenue in the second quarter was approximately 69% from Europe, 5% from the United States, 7% from Asia, and the remaining 19% coming from other countries. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">The geographic distribution over revenue for the first six months of 2008 was approximately 68% from Europe, 7% from the US, 9% from Asia, with the remaining 16% from other countries. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Gross profit as a percentage of revenue for the second quarter and first six months of 2008 was approximately 72% and 71% respectively. Both were significantly higher
than the 64% and 65% reported for the second quarter and first six months of 2007 respectively. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The increase in gross profit as a percentage of revenue
for 2008 compared to 2007 primarily reflects the fact that higher percentage of our revenues are coming from the enterprise security market as previously noted, and the fact that our non-hardware revenues continue to grow as a percentage of total
revenue. Our non-hardware revenues were approximately 23% of total revenue for the first six months of 2008 and compares to 14% of total revenue for the fist six months of 2007. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Both of these items are consistent with the business strategy outlined by Ken and Jan. In addition, the strengthening of
the Euro compared to the US dollar also contributed to the improvement in our gross margins as a percentage of revenue. We estimate that the strengthening of the Euro increased our gross margin percentage by approximately 1.7 percentage points in
the quarter and 1.9 percentage points for the first six months. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Operating expenses for the second quarter of 2008 were $16.4 million, an increase of $5.1
million or 46% from the second quarter of 2007. Operating expenses for the first six months of 2008 were $30.5 million, an increase of $8.7 million or 40% from the same period of 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Operating expenses for the second quarter and first six months of 2008 included $803,000 and $1.5 million respectively related to stock based incentive plans. Stock based incentive plan expenses in the second quarter
and first six months of 2007 were $462,000 and $905,000 respectively. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">It should be noted that the comparison of operating expenses in 2008 to 2007 was
negatively impacted by the weaker US dollar in 2008. We estimate that expenses were $1.7 million or 12% higher for the quarter and $2 million or 11% higher for the first six months than they would have been had the exchange rates in 2008 been the
same as in 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">For the second quarter operating expenses increased by $2.4 million or 36% in sales and marketing, $890,000 or 43% in research and
development, and $2 million or 88% in general and administrative when compared to the second quarter of 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The majority of the increase in sales and
marketing area were related to the Company&#146;s increased investment in sales staff and the costs associated with opening the offices in Brazil and Japan. The increase in research and development was primarily attributable to increased
compensation expenses. And the increase in general administrative expense, primarily reflected increased compensation expenses, professional fees, travel expenses, recruiting costs, and increases in our provisions for uncollectable accounts.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">For the first six months of 2008 operating expenses increased by $4 million or 31% in sales and marketing, $1.7 million or 41% in research and
development, and $3.1 million or 67% in general administrative when compared to the same periods in 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">With the exception of the increase in our
provision for uncollectible accounts, the reasons for the increase in expense for the first six months are generally the same as for the second quarter. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Operating income for the second quarter of 2008 was $9 million, a decrease of $404,000 or 4% from the $9.5 million reported in the second quarter of 2007. For the first six months, operating income was $14.9 million in 2008, a decrease of
$1.4 million or 9% from the $16.3 million reported in 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Operating income as a percentage of revenue, or operating margin was 25.5% for the second
quarter and 23.1% for the first six months of 2008. In 2007, our operating margins were 29.1% for the quarter and 27.7% for the first six months. The decrease in operating margin is attributable to our planned and previously discussed increase in
our investment in our infrastructure that is needed to support future growth. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company recorded income tax expense of $1.8 million for the second
quarter and $3.3 million for the first six months of 2008. The effective tax rate was 20% for the second quarter and 21% for the first six months of 2008. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">For 2007, the Company reported income tax expense of $2.7 million for the second quarter and $4.6 million for the first six months. The effective tax rate reported in 2007 was 28% for both the second quarter and six-month period into
June&nbsp;30th. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The effective tax rates for both 2008 and 2007 reflect our estimate of our four-year tax rate at the end of the second quarter in each
year. The reduction in tax rate is primarily attributable to the benefits expected from our new structure related to the Company&#146;s ownership of its intellectual property. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Earnings before interest, taxes, depreciation, amortization, EBITDA or operating cash flow if you will, was $9.9 million in second quarter and $16.9 million for the first six months of 2008. EBITDA was $311,000 or 3%
lower in the second quarter and $844,000 or 5% lower than in the first six months of 2007. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The makeup of our workforce as of June&nbsp;30, 2008 was 270
people worldwide, with 147 in sales, marketing, and customer support positions, 83 in research and development, and 40 in general administrative categories. The average head count for the second quarter of 2008 was 54 persons or 26% higher than the
average head count for the second quarter of 2007. The average head count for the first six months of the year 2008 was 55 persons or 28% higher than the average head count for the same period in 2007. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We continue to maintain strong net cash and working capital balances during the second quarter of 2008. As of June&nbsp;30, 2008, our net cash balance, which is defined
as total cash less bank borrowings, was $42.1 million, a decrease of $5 million or 12% from $47.8 million at March&nbsp;31, 2008 and an increase of $3.2 million or 8% from $38.8 million at December&nbsp;31, 2007. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As of June&nbsp;30, 2008, our working capital balance was $66.9 million, an increase of $7.9 million or 13% from $59 million at March&nbsp;31, 2008 and an increase of
$14.4 million or 28% from $52.4 million at December&nbsp;31, 2007. We had no debt outstandings during the quarter. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the quarter our day sales
outstanding and accounts receivable increased to 83 days as of June&nbsp;30, 2008 from 67 days at March&nbsp;31, 2008 and from 76 days at December&nbsp;31, 2007. The increase in DSO was primarily related to the timing of when sales were made in the
quarter. I would now like to turn the meeting back to Ken. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you, Cliff. Summing up, we are pleased with the progress we saw in the business in Q2. Not only did we report a record level of revenues for a quarter, but we also
increased our deferred revenues and saw a strong order flow throughout the quarter. The current order flow reinforces our belief that our growth rates over 2007 will accelerate in the second half of the year. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are however reducing our revenue guidance for two primary reasons. One is to more fully consider the impact of our business strategies where a larger portion of our
business activity relates to recurring software revenue, which may be deferred and recognized in future periods. The second is to reflect a more conservative outlook for the full year, given the uncertainty of the world economies. Therefore, we now
project that our full year revenue will grow from 15% to 25% over full year 2007. We expect gross margins to be in the range of 60% to 68% of revenue, and lastly we expect that full year 2008 operating income will be in the range of 20% to 25% of
revenue. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">This guidance reflects the Company&#146;s strategy to continue its aggressive growth by investing in its people and the infrastructure
necessarily for long-term profitability. It also reflects our evolution to a more software centric company with a focus on recurring revenues and in some cases the recording of deferred revenue over multiple years. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Ladies and gentlemen, thank you for your attendance today. I look forward to your participation in the next earnings conference call. At this time I&#146;d like to open
the floor to questions. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>QUESTION AND ANSWER </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">(OPERATOR INSTRUCTIONS) Our first question is coming from Daniel Ives with FBR. Please go ahead. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives - </B><B><I>Friedman, Billings, Ramsey Group, Inc. - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Hey guys. Sure feels good to say this, but congrats on the quarter. Just a few questions, so first can you even speak to big deals? I mean you don&#146;t give a backlog number, but how should we think about that? Are
there specific big deals that are in backlog that going to make &#151; going to be maybe hitting revenue over the next few quarters? Can you just explain about the composition of big deals or is it smaller deals? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Daniel, as the Company grows, we are less reliant on the bigger deals than we have been in the past. It wasn&#146;t that long ago that our top ten customers represented 80% of our total revenue for the year. A couple
of years ago, the top ten customers would represent over &#151; just over half. And that percentage continues to go down. Last year as you may recall, for the first time we didn&#146;t have a single 10% customer. So I think what you&#146;re saying
is just a general growth in the business without a huge reliance on any particular big deal. Jan, do you have anything you&#146;d like to add to that? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">No. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">All right. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives - </B><B><I>Friedman, Billings, Ramsey Group, Inc. - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Now if I think back the last few quarters and you had a few disappointing quarters (inaudible), now you have a solid quarter, healthy outlook. What&#146;s changed?
Because I remember like the last call, right? You said that you see things that we don&#146;t and it&#146;s proven it right, by the strong quarter. What&#146;s happened in the business over the last three months that I&#146;d say maybe changed or
firmed up &#151; strong deal flow? Is it one thing? Is it a confluence of things? Is it longer deal signatures and you guys have kind of structured the business around that now? Can you maybe just give us some clarity around that? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Yeah. In the first quarter earnings conference call, Jan and I and Cliff talked about a change in the business from the point of view of authorization or deal approval from the customers&#146; point of view. It made
the sell cycle a little longer, but I think we&#146;re probably through that or getting close to through that. But I don&#146;t see anything unusual with the quarter we just announced. It&#146;s just an indication of the strong, steady growth of our
business and I think you can expect that going forward. I think that the third quarter will be very strong because of the strong order inflow and deals or bookings that we did in May and June. You can expect a very strong third quarter. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives - </B><B><I>Friedman, Billings, Ramsey Group, Inc. - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Okay. And then &#151; that&#146;s good to hear. And then just a final question. Since you don&#146;t give the backlog number anymore, just maybe if you could anecdotally talk about it. When we think about backlog
going in to let&#146;s say the rest of the year &#151; okay, second half &#151; versus let&#146;s say last year going into the second half &#151; is the visibility that you have on backlog similar, better, than it was a year ago? Just so we could
understand that &#151; because you don&#146;t give that backlog number &#151; just for the rest of the year. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security
International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">So the question is the backlog any better, any worse, any different than this time last year?
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives - </B><B><I>Friedman, Billings, Ramsey Group, Inc. - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Yes. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">I don&#146;t think so. I think that the backlog always consists of deals that come to us with firm purchase orders. They come in every month, they&#146;re typically
scheduled for shipments over three or four shipments over the course of 12 months. None of that has changed really. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives - </B><B><I>Friedman,
Billings, Ramsey Group, Inc. - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. I&#146;ll just sneak in one last question. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Daniel, could you let somebody else in? That&#146;s your fourth question. I apologize. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Daniel Ives -
</B><B><I>Friedman, Billings, Ramsey Group, Inc. - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Tax rate. Tax rate. Mention it. Thanks. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Thanks very much, Dan. </FONT></P> <P STYLE="margin-top:8px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Thank you. Our next question is coming from Robert Breza with RBC Capital Markets. Please go ahead, sir. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Robert Breza - </B><B><I>RBC Capital
Markets - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi. Thanks. Thanks for taking for my question. Cliff, maybe one quick question for you. As we look at the enterprise
business, you&#146;ve talked in prior conference calls that the enterprise business tends to be higher price points. Can you talk about the enterprise business relative to the bank business as it relates to gross margins? Do you see typically better
gross margins on the enterprise side than you do the bank side as the banks tend to purchase more in volumes? Any color there would be helpful. Thanks. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, as you recall, Rob, the enterprise security
markets are probably 20 basis points better in terms of gross margins than the banking business. We do offer price discounts for large volumes. Those large volumes generally do come through the banks, so we have a very wide range of margins when we
look at the banking business. But the enterprise security business on the other hand is generally smaller quantities. So we generally see operating or gross margins on enterprise security 85% and higher. Whereas the banking business on very large
deals may be in the mid-50s, smaller deals than the banks may be in the mid-60s in terms of gross margins. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Robert Breza - RBC Capital Markets - Analyst
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Great. That&#146;s helpful. I&#146;ll jump back in the queue. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our next question is coming from Jonathan Ruykhaver with ThinkPanmure. Please go ahead. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Hey guys. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi Jonathan. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC -
Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hey, given the strength you see about gross and operating margins, what is there in the business mix that causes you to guide below
those levels that you reported in 2Q? Is it just the assumption around business activity in the retail banking side? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data
Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, it&#146;s I think &#151; in the press release and then in my comments, we&#146;re
cognizant that the world economy is difficult and it&#146;s probably less predictable than it&#146;s been for quite some time. So I&#146;d say our actions in reducing our top line guidance is just an intelligent move towards more &#151; a more
conservative look. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">I&#146;m referring more to the profitability on operating margin. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken
Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Sorry. Cliff? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Yeah. When it comes to the gross and operating margins, Jonathan, we&#146;re still seeing in our order flow large orders coming through and overall revenue volume, since it&#146;s picking up in the second half, is
likely to come from some of those larger type deals. So what we&#146;re reflecting in both gross margins and operating margins is A, the potential that the revenue mix in future quarters will be more heavily weighted back toward banks &#151;
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Right. Okay. </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - VASCO Data Security International Inc. - EVP, CFO </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">&#151; and when it comes to operating margins, we&#146;re continuing to invest heavily in people and infrastructure to support the future growth and therefore there too
you might see a decline in operating margins as that investment continues. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC - Analyst</I></B><B> </B>
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Right. Okay. And then just final question. In the corporate access market, can you comment on where the strength is coming from? And how are you winning?
Is it price or is there some product differentiation that might be helping in competitive situations? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security
International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Jan, would you address that question? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Yeah. This is certainly that our strategy that is working very well &#151; let&#146;s repeat our strategy where we are doing large deployments toward banks. And then marketing wise, we are saying to the banks those
Digipasses that you have in your pocket, that you&#146;re using to secure the transaction of your banks, well, they&#146;re coming from VASCO and secondly, VASCO is doing more than just Digipass. So that is the message that we are putting all the
time in the market and that means that we are increasing substantially over enterprise security sales. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC
- - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. So the strategy is basically the same as the strategy you used going in &#151; going down to the bank and retail market.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Oh yeah. Yes. More efficient, but the big difference there is also is and that has also to do with the visibility like on backlogs and so on is that we were running
against the limits with the number of people (inaudible). I mean we did a very good job by increasing our head count and that will also profit to the Company in the future. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Jonathan Ruykhaver - </B><B><I>ThinkPanmure LLC - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Thanks. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our next question is coming from Katherine
Egbert with Jefferies. Please go ahead. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi Katherine. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Katherine, your line is live. I&#146;ll take the next question, thank you. The next question is from Brian Freed with Morgan Keegan. Please go ahead. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Brian Freed - </B><B><I>Morgan Keegan - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi guys.
Thanks for taking my call. A couple of quick questions. First on currency, you indicated that currency had a 6% positive impact on revenue, but a 12% negative impact on OpEx. Given that the Euro moved about 14% versus the dollar year-over-year,
I&#146;m just trying to figure out why it wasn&#146;t a similar impact of revenue as it was to operating expenses. Could you bridge that for me? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff
Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">There&#146;s no easy answer to it, Brian, but the net of it is that when
we do a sale even in Europe, we have the ability to do it in various currencies. So some are in Euros, some are in Swiss francs, some are in British pounds. Whereas our operating expenses it&#146;s more of a consistent base. The majority of our
operating expenses are paid in the currencies of the country in which we operate and today our heaviest investment is still in the Euro areas. So you&#146;ll get a different mix in terms of impact on percentages because the mix of revenues and the
denomination of those revenues is different than the mix of our OpEx and the denomination or what we pay those operating expenses in. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Brian Freed -
</B><B><I>Morgan Keegan - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. And secondly, your tax rate was lower this year. You talked about it briefly. But can you address
what your whole year tax rate&#146;s going to be and if you see that as a sustainable level long-term? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security
International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, under US&nbsp;GAAP, we&#146;re required each quarter to assess and estimate what our full-year tax rate
will be. So the 21% that you see for the year-to-date second quarter is in fact our estimate of our full-year tax rate at this time. Now that tax rate will have sensitivities to the mix of our business, where the net profits results. As you know, we
have operating losses in the United States, and to the extent that the US continues to operate at a loss, that will have a negative effect on our tax rate because we&#146;re not able to tax benefit losses in the US. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Contrary, on the other side of the coin, the higher our revenues, the higher our profits. If those increases are in European region with our new intellectual property
ownership strategy, it is likely that those will have beneficial impacts on our tax rate, i.e. that the tax rate will be lower because those earnings would be taxed at a lower rate. So we had that continuing mix under US GAAP. We always have to do
our best estimate of our full-year results and the tax rate that comes from that is what you see in the quarterly reporting. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Brian Freed - </B><B><I>Morgan Keegan - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">So that would imply we should be modeling at 21% tax rate for the remainder of the year. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">That&#146;s our current best
estimate of what the tax rate will be. As you saw last year, we did have an adjustment in the fourth quarter because the final mix of our results wasn&#146;t what we had expected, and it did result in a slight increase in the tax rate in Q4.
We&#146;ll continue to monitor and update that rate every quarter, but it has the possibility to go both directions depending upon where our earnings are realized. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Brian Freed - </B><B><I>Morgan Keegan - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. And then my final question, could you quantify to some respect the level
of carry over from the large deals that fell into July? Or continued into July? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder,
Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Actually we can&#146;t. We decided we would not identify the amount or the number of deals. The only thing that I&#146;m
really comfortable with saying is that we had very strong bookings in the mid and later part of the quarter and that a large amount of that is going to be reflected in July and certainly the third quarter. And we expect (changed by company after the
call) the third quarter to be very strong. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Brian Freed - </B><B><I>Morgan Keegan - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">And so if I could slip one more in just related to that. Typically you see some seasonality in Europe due to vacations, et cetera. Should we assume better than normal
seasonality for the September quarter in that case? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B>
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, seasonality will continual to play a factor, Brian. But there&#146;s really two issues here. One is the current order flow that we have that will
contribute to the quarter&#146;s result. That will be somewhat muted by new orders that may come in, in the third quarter, and those effects will still be there. So the real question is what will the net result will be for the third quarter we
can&#146;t say today. We&#146;re off to a great start because of the volume orders that came in at the end of the second quarter that will be in the third quarter, but the third quarter&#146;s orders will be affected by our normal seasonality.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Brian Freed - </B><B><I>Morgan Keegan - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">All right. Thanks. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our
next question is coming from Nick Andrews with Lazard Capital Markets. Please go ahead. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Nick Andrews - </B><B><I>Lazard Capital Markets -
Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Good morning, guys. Congratulations on a good quarter. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thanks, Nick.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Nick Andrews - </B><B><I>Lazard Capital Markets - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Hey, can you guys just maybe quantify a little bit about the new bookings in the quarter versus &#151; sort on a year-over-year basis? It was &#151; is it up on a year-over-year basis versus Q2 last year or do you see
a lot of revenue sort of flow into the quarter from pre-existing customers? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder,
Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Jan, would you answer that question? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Yes. Yeah. The bookings were up significantly,
but we need to &#151; let&#146;s say the ultimate take is quite strong like Cliff and Ken mentioned already and it continues to be very good. At the other hand, I will also repeat here the message of Ken saying that some of those orders can be put
in deferred revenue for several reasons. And that&#146;s a part of our business model that we are putting in place. (Inaudible) that I was to strengthen here in fact is &#151; we didn&#146;t mention it maybe too much today is but we cannot ignore
that we are increasing a lot of our software sales or let&#146;s say our normal hardware business. And that is extremely important for the Company and that reflects directly to our gross margin. So the signs are in fact on all levels very good.
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Nick Andrews - </B><B><I>Lazard Capital Markets - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Okay. Great. Just &#151; sort of a follow-up on. I &#151; it sounded like you guys said that the &#151; what you&#146;re seeing in backlog for the third quarter here is directionally up from what you had in 2Q of this
previous quarter. Is that correct? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Nick, I don&#146;t think we&#146;re going to comment on backlog or quantification of those kinds of things. And it does seem to be a recurring question from the group
today. So we&#146;re not going to comment on quarter-over-quarter changes in backlog or those kinds of things. I think if you look at our full-year guidance, which is still for very strong revenue of 15% to 25% and you compare it to the fact that
our year-to-date is only 9%, that implies that we do expect that the impact of the stronger order flow that we&#146;ve been talking about, the impact of our increase penetration in the enterprise security markets will in fact accelerate in the
second half of this year. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Nick Andrews - </B><B><I>Lazard Capital Markets - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. So I guess just a quick follow-up. Should we see some seasonality, the same seasonality from the third quarter to the fourth quarter then as we have seen in the
past where with revenue growth heading into fourth quarter? Is that what you guys are planning for? Is that what the expectations are? </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, based upon history, I guess we can expect that the fourth quarter will be a strong quarter. It always typically has been. We&#146;ve had some anomalies one way or
the other in some years, but yes. We expect the fourth quarter to be strong. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Nick Andrews - </B><B><I>Lazard Capital Markets - Analyst</I></B><B> </B>
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Great. Thanks, guys. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our next question is coming from Sean Jackson with Avondale Partners. Please go ahead. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Sean Jackson - </B><B><I>Avondale Partners - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Can you guys hear me okay? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Yes, Sean. We can. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Sean Jackson - </B><B><I>Avondale Partners - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">I want to again talk about the booking strength in May and June. What do you attribute that to? Is it something that &#151; deals that you&#146;ve been working on for
awhile just became closed? Or was there a change in the market dynamics that prompted companies to make decisions? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data
Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, in the first quarter earnings call, we talked about being very optimistic about
the rest of the year. And we had a very strong forecast that was maturing and I think it&#146;s just a realization of that strong forecast that we saw 90 days ago that&#146;s happening. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Sean Jackson - </B><B><I>Avondale Partners - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Is it fair to say that those strong bookings
are leaning more toward the banking segment than the enterprise segment? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder,
Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Yes. I think that&#146;s true. Yes. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Sean Jackson - </B><B><I>Avondale Partners - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. And one of the metrics that I might have missed on the prepared
remarks was the non-hardware contribution. I think you said 23% for the six-month period. What was it for the second quarter? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown -
</B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We didn&#146;t have that in the prepared remarks, but the first quarter I think
we announced at 20%, the second quarter was 25% of revenue, the average over &#151; or the total for the six months was 23%. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Sean Jackson -
</B><B><I>Avondale Partners - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Great. Do you have the number of what it was in the second quarter of &#145;07 by any chance?
</FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">14%. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Sean Jackson - </B><B><I>Avondale Partners - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All right. Thank you. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security
International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">You&#146;re welcome. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our next question is coming from Ed Ching with [Brailey]. Please go ahead. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ed Ching - </B><B><I>Brailey - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Good morning,
guys. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi, Ed. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ed Ching - </B><B><I>Brailey - Analyst</I></B><B>
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">You guys talked about online gaming. I know recently you signed basically the market leader in the MMORPG world as a customer for authenticating and
securing avatars. Can you give us a little color on what you think this market opportunity is going to be? How do you see these rollouts going with this customer? And are you talking to any other providers of online gaming right now? </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Jan, would you address that please? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data
Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Yeah. I will start with your last question. It&#146;s of course yes. We are the market leader
in authentication and it&#146;s normal that we are talking with a lot of application solution providers, one being the e-gaming and its normal that we are talking with the whole market about it. It&#146;s &#151; it is the market of virtual life.
It&#146;s extremely fast growing, this virtual life stuff I should say. It&#146;s &#151; we expect that it&#146;s &#151; it won&#146;t be a &#151; for us a very growing business today and that I think you can find in the Internet. There are already
millions and millions of users. As you know, Blizzard and (inaudible) owns that is one of our customers. And I think their game is the Warcraft and they&#146;re sort of specialists in that. But I think you cannot only see it in the US, you need to
see it on the worldwide level that is happening. So yes, we expect that will be a extremely important market for VASCO in the future. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ed Ching -
Brailey - Analyst </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Jan, can you tell me what the market opportunity is and give me a number or what do you guys think it could be? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">I can only give you a number out of my head of the total number of users and it&#146;s tens of millions. That does not mean I will say pay attention. It does not mean that all the users will need even &#151; will have
a need of having strong authentication. But that is a number and that number is increasing every day. It is only when a user is coming in a &#151; I should say in a phase where his kidnapping of his life &#151; his ransom could &#151; sum that will
be high or where money is involved, that really we see the need for today &#151; that we see the need for strong authentication. But I cannot give you those numbers of how much at the present stage it is. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">I&#146;d like to add one more thing. The fact that this customer, Blizzard, decided to acquire from VASCO, a custom designed product with a logo and with a custom design face on a physical token, demonstrates what
I&#146;ve been talking about for some time, although soft tokens have a place in what we do and what we sell. In any of the large banks, and now you&#146;re seeing the Internet based companies, like the fact that they have a physical token that they
can brand as a part of their service to always remind their customers of the safe attitude, the secure attitude they have towards protecting the identity and assets of their customers. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Ed Ching - </B><B><I>Brailey- Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Great. And I think last quarter &#151; or fourth quarter you
guys had three deals that were delayed. Are those all closed now? Those three large deals? Or are they &#151; some of them still open? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown -
</B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, Ed we won&#146;t comment again on specifics of those deals. I think when
we said that they were delayed in 2007 we said that they would ship throughout 2008. So we can&#146;t quantify that specific amount for you. Some of those items have shipped. I think probably some are still open to ship. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ed Ching - </B><B><I>Brailey - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Great.
Thanks, guys. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you, Ed. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our next question is coming from Andrew Abrams with Avian Securities. Please go ahead. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Andrew Abrams - </B><B><I>Avian Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Just a characterization if you could. First on the
software side, how much impact does the software part have on your lowering your revenue guidance for the full year? Since we&#146;re spreading out some of that as opposed to making an actual physical one-time sale, does that show up in that
reduction? And second, if you could characterize your US business, just an attitudinal side from the banks and the enterprise side? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown -
</B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Well, Andrew, let me talk about the first one &#151; the first part of your
question, and then Ken and Jan can talk about the second part, the US business. But the fact that the accounting rules are fairly precise, when it comes to revenue recognition, especially for multiple element deals, the fact that we are bundling
software and presenting it to our customers on a number of different basis, plays a significant role in the reduction of the guidance. When you look at this quarter, for example, we reported an overall increase in sales of 9% compared to 2007, but
at the same time, our deferred revenues increased over $1 million, approximately $1.5 million, reflecting the fact that we had actual transactions that had we sold them on a basis similar to what we had in the past, that would have been reflected in
&#151; or some portion of that $1.5 million would have been reflected in current revenues. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Andrew Abrams - Avian Securities - Analyst </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Um-hmm. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc.
- - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">So as we do go forward, as we continue our strategy of delivering these multiple elements, all under one contract, one umbrella,
we have to pay very close attention to the accounting rules when it is a bundled transaction and there are post contract support issues. Maintenance support that are bundled in that, we cannot recognize any portion of that transaction up front in
the revenue. We have to defer the entire transaction, the token, the software, the maintenance and support, and recognize it over the life of that post contract support issue. So if it&#146;s a one-year maintenance, we recognize it ratably over the
12 months. If it&#146;s a three-year deal, we recognize it ratably over the 36 months. So part of the reflection in our guidance is understanding those better, especially as it relates to our evolving strategies on the software side. And it is a
factor, albeit we cannot quantify it specifically for you. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Jan, would you address the second question? Our progress in the United States? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Jan Valcke - </B><B><I>VASCO Data Security International Inc. - President, COO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All right. Thank you. The progress in the United
States is mainly in what is called application solution security and in enterprise security. Application security like online gaming, enterprise security or remote access and network security. We were progressing there extremely fast in the market
and we are also hiring or we have already hired and we are putting &#151; integrating more and more people in our Boston team. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The second thing I would
like to highlight in the US is that we see that we &#151; as market leader that we are getting more and more recognized also as market leader. And that the software vendors, the &#151; all vendors in general are recognizing (inaudible) VASCO as the
leader in authentication and they want to do business. Business that maybe will not be reflected right away in sales, but that will bring out in the next quarters, months, years, in fact new bundled products to the market. That is a very successful
program that our US people are doing today. If it comes to the banking, I need to say that (inaudible) banking in the US is business as usual and that retail banking is nowhere. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Will it come one day retail bank in US? I cannot imagine that the US will still behind the rest of the world if even you see that in Asian markets, even like China and things like that, that they are so fast growing
in those new banking applications. But if you ask me today at the end of June 2008, I need to report that retail banking business is quite slow in the US. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Andrew Abrams - </B><B><I>Avian Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Great. Thank you. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. Our next question is coming from Fred Ziegel of
Soleil Securities. Please go ahead. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi everybody. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International
Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Hi, Fred. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">When you started the year, the plan was 100 person head count addition. I
think we&#146;re up 30 through the first half. Is 100 still the number or with the somewhat modified revenue growth are the head count plans modified as well? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">I think Fred, the answer is 100 would be the target.
We&#146;ve not slowed down our hiring plans at all. As we mentioned in the first quarter call, we&#146;ve hired dedicated resources to do recruiting. The issue is with turnover, market conditions being what they are, it is unlikely that we&#146;ll
achieve a net addition of 100. It will be below that for the full year, but that &#151; that&#146;s still the goal and we haven&#146;t backed off from a business point of view, looking to hire those people. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay.
You&#146;ve always &#151; you sold authentication solutions as a combination of tokens, software, and maintenance, and we&#146;re still doing that, but what is changing in terms of the composition of the deal such that a lot of it now needs to be
ratably recognized as opposed to upfront? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Under the accounting literature, Fred, there is term VSOE. We have to have vendor specific objective evidence as to the value of any of the items that have not yet been
delivered so that we can separate the delivered items and recognize those as revenue and defer only the undelivered element based on that VSOE. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Historically what we&#146;ve done in most of our contracts is identify fairly specifically here is the cost of the tokens, here is the cost of the host system software, here is the maintenance and support, and when you renew maintenance and
support, here&#146;s how you&#146;re going to renew it. So over the history of the Company, we&#146;ve been able to demonstrate what the value of the maintenance is because we&#146;ve been able to go back to those renewals and say here is exactly
what the customers have paid for maintenance on stand alone basis. So that&#146;s created the objective evidence. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As we go forward into our new models,
some of the structures are per user per year kind of basis, and that charge includes maintenance and support. Under accounting literature, if you have the license and the maintenance for the same terms, you&#146;re never able to demonstrate VSOE
because the customer is always paying one fee and getting both products. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Right. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc.
- - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">So you don&#146;t have the ability to break out or demonstrate VSOE because he never pays for those undelivered elements on a
stand-alone basis. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">I got it. Okay. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B>
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">And is that happening &#151; are those kinds of deals more on the bank side or the enterprise side? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">I think we see them on both sides, because our &#151; again our strategy is to give our customers the most flexibility in designing their systems the way they need it for their customers. So as you know, we&#146;ve
got over 50 different types of products we can put in the hands of the consumers and that allows, with our host system software, VACMAN controller, to use any of those different models simultaneously so they can make decisions on person who
doesn&#146;t need a lot of security for one model all the way up to somebody that needs a lot of security and they use a different model. So we&#146;re still customer-driven and the decision on how we build it, how they use it, is still in large
part driven by what they need. So I can&#146;t say it is just us, but it&#146;s a combination of both sides that will drive that. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel -
</B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. Last question. On the gaming side in Blizzard specifically the last time I looked, which is I
guess a couple of days ago, they are and have been sold out for a while. Where do you guys stand in terms of shipments to them? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt -
</B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We &#151; as you indicate, they did sell to their end customers
the original order and an additional order has been placed on VASCO to manufacture more. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B>
</B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay. So work in process, huh? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt -
</B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Yes. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Fred Ziegel - </B><B><I>Soleil Securities - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Okay.
Thanks, guys. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Sure. Operator, we have time for one more call. Or one more question I should say. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Not a problem, sir. Our last question is coming from Scott Zeller of Needham and Company. Please go ahead. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Scott Zeller - </B><B><I>Needham and Company - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Thanks. Regarding the increase in DSO, it seems to point to back in loaded linearity, but with the commentary about improved visibility, could you just help us understand these two forces? </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Your interpretation is correct and it&#146;s consistent with my comment that a large percentage of the sales happen in the last month of the quarter. Overall in terms of linearity, we have good visibility, but that
doesn&#146;t necessarily mean that the customers are wanting the products on an equal basis throughout the quarter. So while we see what the orders are, we know when the customer wants the delivery, our just in time philosophy requires us really to
deliver it when the customer wants it. So I don&#146;t think the two necessarily go together. When we have the visibility, we know that generally we&#146;re going to have many of the shipments in the last month of the quarter and when you look at
the variability in our DSO, 83 days in this particular quarter, 67 days in the prior quarter, that itself is more a reflection of how the transactions did occur during that specific quarter. </FONT></P> <P
STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Scott Zeller - </B><B><I>Needham and Company - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Okay. And can you tell us the size of the largest deal in the quarter? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO Data Security International Inc. - EVP,
CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We cannot tell you that. We can tell you that the quarter had two customers that were more than 10% of our revenues. On a year to date
basis, we still have no customers that are more than 10%. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Scott Zeller - </B><B><I>Needham and Company - Analyst</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">I&#146;m sorry. Can you repeat that again? </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Cliff Bown - </B><B><I>VASCO
Data Security International Inc. - EVP, CFO</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Yeah. On a year to date June&nbsp;30, 2008 basis, we have no single customer that represented
10% of our revenues. For the quarter however, we had two customers that were 10% of our revenues or more. And consistent with our prior discussions, our business is a little bit lumpy. We do ship to the customers when the customers require it based
on their rollout structures, so in this particular quarter we had two customers that had heavy rollout schedules. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Scott Zeller - </B><B><I>Needham and
Company - Analyst</I></B><B> </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you very much. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ken Hunt - </B><B><I>VASCO Data Security International Inc. - Founder, Chairman, CEO</I></B><B> </B></FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All right. In conclusion, hopefully you&#146;ve gotten the message that management expects a strong third quarter and a strong last six months of the year. We will assess
where we are at the end of the third quarter and assess the position of our guidance at that time. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">At this time, I want to thank everybody for
participating in the call. And as always, I want to thank VASCO people around the world for their hard efforts in their execution. And everybody have a good afternoon. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>Operator </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Thank you. This does conclude today&#146;s conference call. You may now disconnect. </FONT></P>
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