----

----

| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------------|

| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|

| Utah                                                          |   | 87-0398877                          |
|---------------------------------------------------------------|--------|-------------------------------------|
| (State or other jurisdiction ofincorporation or organization) |   | (I.R.S. EmployerIdentification No.) |

| Securities registered under Section 12(b) of the Act:Title of each class | Name of each exchange on which registered  |
|--------------------------------------------------------------------------|-------------------------------------------------|
| Common Stock, $0.001 par value                                      | The NASDAQ Capital Market                  |

----

----

----

| Larger Accelerated Filer ¨ | Accelerated Filer ¨                    |
|---------------------------------|---------------------------------------------|
| Non-Accelerated Filer x         | Smaller Reporting Company  ¨ |

----

| a)   | Item 9A(T) has been modified in entirety to disclose management’s revised conclusion on the effectiveness of our disclosure controls. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | As previously reported management determined that the Company incorrectly deferred revenue and associated costs during the fiscal years beginning 2004 through 2008 |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | In addition to the above, additional disclosures have been provided under Management’s Discussion and Analysis of Financial Condition and Results of Operations, accounting policy on revenue recognition and note related to income tax. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                              |                                                                                                                | PAGE   |
|---------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|
| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1                                                                                                                   |
|                                              |                                                                                                                |   |
| PART I.                                           |                                                                                                                |   |
| ITEM 1.                                           | BUSINESS                                                                                                            | 1      |
| ITEM 1A.                                          | RISK FACTORS                                                                                                        | 12     |
| ITEM 1B.                                          | UNRESOLVED STAFF COMMENTS                                                                                           | 17     |
| ITEM 2.                                           | PROPERTIES                                                                                                          | 18     |
| ITEM 3.                                           | LEGAL PROCEEDINGS                                                                                                   | 18     |
| ITEM 4.                                           | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 | 21     |
|                                              |                                                                                                                |   |
| PART II.                                          |                                                                                                                |   |
| ITEM 5.                                           | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES | 22     |
| ITEM 6.                                           | SELECTED FINANCIAL DATA                                                                                             | 24     |
| ITEM 7.                                           | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 26     |
| ITEM 7A.                                          | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                          | 37     |
| ITEM 8.                                           | FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                                                                          | 37     |
| ITEM 9.                                           | CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                 | 37     |
| ITEM 9AT.                                         | CONTROLS AND PROCEDURES                                                                                             | 38     |
| ITEM 9B.                                          | OTHER INFORMATION                                                                                                   | 39     |
|                                              |                                                                                                                |   |
| PART III.                                         |                                                                                                                |   |
| ITEM 10.                                          | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                  | 40     |
| ITEM 11.                                          | EXECUTIVE COMPENSATION                                                                                              | 40     |
| ITEM 12.                                          | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                      | 40     |
| ITEM 13.                                          | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                      | 40     |
| ITEM 14.                                          | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                              | 40     |
|                                              |                                                                                                                |   |
| PART IV.                                          |                                                                                                                |   |
| ITEM 15.                                          | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                          | 41     |
|                                              |                                                                                                                |   |
| SIGNATURES                                        |                                                                                                                | 43     |

----

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

ITEM 1.  BUSINESS

----

| Market                                       | Typical Number of Participants |
|----------------------------------------------|--------------------------------|
| · Professional Conferencing:  | 20-200                         |
| · Premium Conferencing        | 8-30                           |
| · Tabletop Conferencing       | 1-30                           |
| · Personal Conferencing       | 1-15                           |

----

| ·   | Professionally installed audio conferencing systems that are used in executive boardrooms, courtrooms, hospitals, and auditoriums that integrate with all leading video and telepresence systems |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Premium conferencing systems that integrate with video and web conferencing systems |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | Tabletop conferencing phones used in conference rooms and offices |
|--------------------|-------------------------------------------------------------------|

| ·   | Personal conferencing devices that enable hands-free audio communications in new ways that have never before been possible. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Increasing availability of easy-to-use audio conferencing equipment |
|--------------------|---------------------------------------------------------------------|

| ·   | Improving voice quality of audio conferencing systems compared to telephone handset speakerphones |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | Trending expansion of global, regional, and local corporate enterprises |
|--------------------|-------------------------------------------------------------------------|

| ·   | Availability of a wider range of affordable audio conferencing products for small businesses and home offices |
|--------------------|---------------------------------------------------------------------------------------------------------------|

| ·   | Growth of distance learning and corporate training programs |
|--------------------|-------------------------------------------------------------|

| ·   | Trend toward deploying greater numbers of teleworkers |
|--------------------|-------------------------------------------------------|

| ·   | Decreases in the amount of travel within most enterprises for routine meetings |
|--------------------|--------------------------------------------------------------------------------|

| ·   | Transition to the Internet Protocol, or IP, network from the traditional public switched telephone network, or PSTN and the deployment of VoIP applications |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| PCs & Macs                     | VoIP telephony applications such as Skype & Vonage; enterprise softphones; audio for web-based videoconferencing applications; gaming; audio playback |
|------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cell phones                        | Connects to the 2.5mm headset jack of many cell phones for hands-free, full-duplex audio conferencing                                                     |
| Telephones                         | Connects to the headset jack (certain phone models) for hands-free, full-duplex audio conferencing                                                        |
| iPods & MP3 players            | For full-bandwidth audio playback                                                                                                                         |
| Desktop video conferencing systems | For hands-free, full-duplex audio conferencing                                                                                                            |

----

| ·   | InfoComm – the AV industry’s largest trade show. In June 2008 we had a strong presence at InfoComm, where we highlighted a significant number of new products. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | National Systems Contractors Association – this show focuses on the sound reinforcement industry, and we highlight our professional audio conferencing products. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A/V Integrator trade shows – we regularly invest and participate in trade shows hosted by our partners, namely system integrators. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | channel partnerships; |
|--------------------|-----------------------|

| ·   | our ability to effectively communicate the differentiated value-added features of our products through sales and marketing efforts; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | product design, quality, and functionality of products; |
|--------------------|---------------------------------------------------------|

| ·   | establishment of brand name recognition; |
|--------------------|------------------------------------------|

| ·   | pricing; |
|--------------------|----------|

| ·   | access to and penetration of distribution channels; |
|--------------------|-----------------------------------------------------|

| ·   | quality of customer support; and |
|--------------------|----------------------------------|

| ·   | a significant customer base. |
|--------------------|------------------------------|

----

----

| ·   | Avoidance of a significant investment in upgrading our manufacturing infrastructure; |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | RoHS-compliant manufacturing facilities; |
|--------------------|------------------------------------------|

| ·   | Scalability in our manufacturing process without major investment or major restructuring costs; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Achievement of future cost reductions on manufacturing costs and inventory costs based upon increased economies of scale in material and labor; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Manufacturing world class quality products by partnering with outsource manufacturers certified with International Organization of Standardization (ISO) processes. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

ITEM 1A.  RISK FACTORS

----

| ·   | meeting required specifications and regulatory standards; |
|--------------------|-----------------------------------------------------------|

| ·   | meeting market expectations for performance; |
|--------------------|----------------------------------------------|

| ·   | hiring and keeping a sufficient number of skilled developers; |
|--------------------|---------------------------------------------------------------|

| ·   | obtaining prototype products at anticipated cost levels; |
|--------------------|----------------------------------------------------------|

| ·   | having the ability to identify problems or product defects in the development cycle; and |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | achieving necessary manufacturing efficiencies. |
|--------------------|-------------------------------------------------|

----

----

| ·   | unexpected changes in, or the imposition of, additional legislative or regulatory requirements; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | unique environmental regulations; |
|--------------------|-----------------------------------|

| ·   | fluctuating exchange rates; |
|--------------------|-----------------------------|

| ·   | tariffs and other barriers; |
|--------------------|-----------------------------|

| ·   | difficulties in staffing and managing foreign sales operations; |
|--------------------|-----------------------------------------------------------------|

| ·   | import and export restrictions; |
|--------------------|---------------------------------|

| ·   | greater difficulties in accounts receivable collection and longer payment cycles; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | potentially adverse tax consequences; |
|--------------------|---------------------------------------|

| ·   | potential hostilities and changes in diplomatic and trade relationships; and |
|--------------------|------------------------------------------------------------------------------|

| ·   | disruption in services due to natural disaster, economic or political difficulties, quarantines, transportation, or other restrictions associated with infectious diseases. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the market in which we do business or relating to us specifically; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | disparity between our reported results and the projections of analysts; |
|--------------------|-------------------------------------------------------------------------|

| ·   | the shift in sales mix of products that we currently sell to a sales mix of lower-gross profit product offerings; |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   | the level and mix of inventory levels held by our distributors; |
|--------------------|-----------------------------------------------------------------|

| ·   | the announcement of new products or product enhancements by us or our competitors; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | technological innovations by us or our competitors; |
|--------------------|-----------------------------------------------------|

| ·   | success in meeting targeted availability dates for new or redesigned products; |
|--------------------|--------------------------------------------------------------------------------|

| ·   | the ability to profitably and efficiently manage our supplies of products and key components; |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | the ability to maintain profitable relationships with our customers; |
|--------------------|----------------------------------------------------------------------|

| ·   | the ability to maintain an appropriate cost structure; |
|--------------------|--------------------------------------------------------|

| ·   | quarterly variations in our results of operations; |
|--------------------|----------------------------------------------------|

| ·   | general consumer confidence or general market conditions or market conditions specific to technology industries; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | domestic and international economic conditions; |
|--------------------|-------------------------------------------------|

| ·   | unexpected changes in regulatory requirements and tariffs; |
|--------------------|------------------------------------------------------------|

| ·   | our ability to report financial information in a timely manner; and |
|--------------------|---------------------------------------------------------------------|

| ·   | the markets in which our stock is traded. |
|--------------------|-------------------------------------------|

----

ITEM 1B.  UNRESOLVED STAFF COMMENTS

----

ITEM 2.  PROPERTIES

ITEM 3.  LEGAL PROCEEDINGS

----

----

----

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

----

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

|           |   | 2008   |   |   | 2007   |   |
|----------------|--------|--------|--------|--------|--------|--------|
|           |   | High   |   |   | Low    |   |   | High |   |   | Low |   |
|           |   |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter  |   | $      | 7.25   |   |   | $      | 4.40 |   |   | $ | 3.75 |   |   | $ | 3.00 |   |
| Second Quarter |   |   | 7.42   |   |   |   | 5.00 |   |   |   | 4.34 |   |   |   | 3.20 |   |
| Third Quarter  |   |   | 5.81   |   |   |   | 4.50 |   |   |   | 6.69 |   |   |   | 4.05 |   |
| Fourth Quarter |   |   | 5.07   |   |   |   | 3.66 |   |   |   | 6.58 |   |   |   | 4.57 |   |

----

|                                           | Number of securities to be issued upon exercise of outstanding options,warrants, and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans |
|------------------------------------------------|---------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
| Equity compensation plans                      |                                                                                        |                                                                        |                                                                                         |
| approved by security holders                   | 1,199,046                                                                                   | $5.85                                                                       | 996,000                                                                                      |
| Equity compensation plans not                  |                                                                                        |                                                                        |                                                                                         |
|    approved by security holders | -                                                                                           | -                                                                           | -                                                                                            |
| Total                                          | 1,199,046                                                                                   | $5.85                                                                       | 996,000                                                                                      |

| Period                               | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may be Purchased Under the Plans or Programs (1) |
|--------------------------------------|----------------------------------|------------------------------|----------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|
| April 1, 2008 – April 30, 2008 | 42,915                           | $4.80                        | 42,915                                                                           | $1,056,105                                                                                                   |
| May 1, 2008 – May 31, 2008     | 129,395                          | $4.42                        | 129,395                                                                          | $483,823                                                                                                     |
| June 1, 2008 – June 30, 2008   | 50,000                           | $4.15                        | 50,000                                                                           | $276,573                                                                                                     |
| Total                                | 222,310                          |                         | 222,310                                                                          |                                                                                                         |

| (1)   | On August 30, 2007, we announced that our Board of Directors had approved a stock repurchase program to purchase up $3,625,000 of our common stock during the following 12 month period in open market and private block transactions. On May 1, 2008 we announced that our Board of Directors authorized the purchase of up to an additional $1 million of our commonstock. All repurchased shares will be immediately retired. The stock repurchase program expired on August 30, 2008. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

ITEM 6.  SELECTED FINANCIAL DATA

|                                                           |   | Years Ended June 30,                             |       |
|----------------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                           |   | 2008                                             |       |   | 2007 |   |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                           |   | (in thousands of dollars, except per share data) |       |
| Operating results(1):                                          |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                        |   | $                                                | 38,758     |   |   | $ | 39,783 |   |   | $ | 34,528 |   |   | $ | 28,754 |   |   | $ | 26,727 |   |
| Costs and expenses:                                            |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Cost of goods sold                                 |   |                                             | 16,204     |   |   |   | 17,637 |   |   |   | 16,852 |   |   |   | 12,608 |   |   |   | 15,409 |   |
|   Sales & Marketing                              |   |                                             | 6,673      |   |   |   | 7,791 |   |   |   | 7,866 |   |   |   | 9,070 |   |   |   | 8,497 |   |
|   Research and product development                   |   |                                             | 7,070      |   |   |   | 7,535 |   |   |   | 8,299 |   |   |   | 5,305 |   |   |   | 4,237 |   |
|   General and administrative                         |   |                                             | 7,669      |   |   |   | 3,091 |   |   |   | 5,108 |   |   |   | 5,489 |   |   |   | 6,767 |   |
|   Settlement in shareholders' class action           |   |                                             | -          |   |   |   | - |   |   |   | (1,205 | ) |   |   | (2,046 | ) |   |   | 4,080 |   |
|   Impairment losses                                  |   |                                             | -          |   |   |   | - |   |   |   | - |   |   |   | 180 |   |   |   | - |   |
|   Restructuring charge                               |   |                                             | -          |   |   |   | - |   |   |   | - |   |   |   | 110 |   |   |   | - |   |
| Operating income (loss)                                        |   |                                             | 1,142      |   |   |   | 3,729 |   |   |   | (2,392 | ) |   |   | (1,962 | ) |   |   | (12,263 | ) |
|   Other income (expense), net                        |   |                                             | 1,005      |   |   |   | 1,523 |   |   |   | 1,016 |   |   |   | 318 |   |   |   | (261 | ) |
| Income (loss) from continuing operations before income taxes   |   |                                             | 2,147      |   |   |   | 5,252 |   |   |   | (1,376 | ) |   |   | (1,644 | ) |   |   | (12,524 | ) |
| Benefit (provision) for income taxes                      |   |                                             | 3,096      |   |   |   | (457 | ) |   |   | 1,005 |   |   |   | 3,370 |   |   |   | 964 |   |
| Income (loss) from continuing operations                       |   |                                             | 5,243      |   |   |   | 4,795 |   |   |   | (371 | ) |   |   | 1,726 |   |   |   | (11,560 | ) |
| Income from discontinued operations, net of tax           |   |                                             | 16         |   |   |   | 422 |   |   |   | 2,156 |   |   |   | 14,128 |   |   |   | 2,015 |   |
| Net income (loss)                                              |   | $                                                | 5,259      |   |   | $ | 5,217 |   |   | $ | 1,785 |   |   | $ | 15,854 |   |   | $ | (9,545 | ) |
|                                                           |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per common share:                              |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Basic earnings (loss) from continuing operations   |   | $                                                | 0.49       |   |   | $ | 0.42 |   |   | $ | (0.03 | ) |   | $ | 0.15 |   |   | $ | (1.05 | ) |
|   Diluted earnings (loss) from continuing operations |   | $                                                | 0.49       |   |   | $ | 0.41 |   |   | $ | (0.03 | ) |   | $ | 0.14 |   |   | $ | (1.05 | ) |
|   Basic earnings from discontinued operations        |   | $                                                | 0.00       |   |   | $ | 0.04 |   |   | $ | 0.18 |   |   | $ | 1.26 |   |   | $ | 0.18 |   |
|   Diluted earnings from discontinued operations      |   | $                                                | 0.00       |   |   | $ | 0.04 |   |   | $ | 0.18 |   |   | $ | 1.15 |   |   | $ | 0.18 |   |
|   Basic earnings (loss)                              |   | $                                                | 0.49       |   |   | $ | 0.45 |   |   | $ | 0.15 |   |   | $ | 1.42 |   |   | $ | (0.86 | ) |
|   Diluted earnings (loss)                            |   | $                                                | 0.49       |   |   | $ | 0.45 |   |   | $ | 0.15 |   |   | $ | 1.29 |   |   | $ | (0.86 | ) |
| Weighted average shares outstanding:                           |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Basic                                              |   |                                             | 10,694,401 |   |   |   | 11,497,773 |   |   |   | 11,957,756 |   |   |   | 11,177,406 |   |   |   | 11,057,896 |   |
|   Diluted                                            |   |                                             | 10,798,281 |   |   |   | 11,575,721 |   |   |   | 12,206,618 |   |   |   | 12,332,106 |   |   |   | 11,057,896 |   |
|                                                           |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                           |   | As of June 30,                                   |       |
|                                                           |   |                                             | 2008       |   |   |   | 2007 |   |   |   | 2006 |   |   |   | 2005 |   |   |   | 2004 |   |
|                                                           |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial data:                                                |   |                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets                                                 |   | $                                                | 29,555     |   |   | $ | 38,389 |   |   | $ | 39,729 |   |   | $ | 34,342 |   |   | $ | 26,553 |   |
| Long-term Securities                                           |   |                                             | 11,168     | (2) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total assets                                                   |   |                                             | 44,970     |   |   |   | 41,135 |   |   |   | 41,391 |   |   |   | 37,484 |   |   |   | 31,507 |   |
| Long-term debt, net of current maturities                      |   |                                             | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 240 |   |
| Capital leases, net of current maturities                      |   |                                             | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2 |   |
| Total shareholders' equity                                     |   |                                             | 31,562     |   |   |   | 30,257 |   |   |   | 30,223 |   |   |   | 25,033 |   |   |   | 9,348 |   |

| (1)   | The above financial data were restated as more fully described under Note 21 to the Consolidated Financial Statements included in Item 8 of this Form 10-K/A-2. The above restatement was not made for deferred revenue or associated costs related to discontinued operations. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | During 2008 we reclassified approximately $11.2 million of auction rate securities from a current to long-term asset on our balance sheet. We believe it is probable that we will be able to collect all amounts due according to the contractual terms of the investments. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                         |   | Fiscal 2008 Quarters Ended                       |   |
|--------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                         |   | Sept. 30                                         |   |   | Dec. 31 |   |   | Mar. 31 |   |   | June 30 |   |   | Total |   |
|                                                         |   | (in thousands of dollars, except per share data) |   |
| Revenue                                                      |   | $                                                | 9,770  |   |   | $ | 10,453 |   |   | $ | 8,963 |   |   | $ | 9,572 |   |   | $ | 38,758 |   |
| Cost of goods sold                                           |   |                                             | (4,415 | ) |   |   | (4,150 | ) |   |   | (3,610 | ) |   |   | (4,029 | ) |   |   | (16,204 | ) |
| Sales & Marketing                                        |   |                                             | (1,601 | ) |   |   | (1,578 | ) |   |   | (1,640 | ) |   |   | (1,854 | ) |   |   | (6,673 | ) |
| Research and product development                             |   |                                             | (1,756 | ) |   |   | (1,678 | ) |   |   | (1,701 | ) |   |   | (1,935 | ) |   |   | (7,070 | ) |
| General and administrative                                   |   |                                             | (2,895 | ) |   |   | (1,198 | ) |   |   | (1,183 | ) |   |   | (2,393 | ) |   |   | (7,669 | ) |
| Other income, net                                            |   |                                             | 341    |   |   |   | 311 |   |   |   | 196 |   |   |   | 157 |   |   |   | 1,005 |   |
| Income (loss) from continuing operations before income taxes |   |                                             | (556   | ) |   |   | 2,160 |   |   |   | 1,025 |   |   |   | (482 | ) |   |   | 2,147 |   |
| (Provision for) benefit from income taxes          |   |                                             | (171   | ) |   |   | (449 | ) |   |   | (335 | ) |   |   | 4,051 |   |   |   | 3,096 |   |
| Income (loss) from continuing operations                     |   |                                             | (727   | ) |   |   | 1,711 |   |   |   | 690 |   |   |   | 3,569 |   |   |   | 5,243 |   |
| Income from discontinued operations                          |   |                                             | 15     |   |   |   | 1 |   |   |   | - |   |   |   | - |   |   |   | 16 |   |
| Net income (loss)                                            |   | $                                                | (712   | ) |   | $ | 1,712 |   |   | $ | 690 |   |   | $ | 3,569 |   |   | $ | 5,259 |   |
|                                                         |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic income (loss) earnings per common share:               |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing operations                            |   | $                                                | (0.07  | ) |   | $ | 0.16 |   |   | $ | 0.06 |   |   | $ | 0.35 |   |   | $ | 0.49 |   |
|   Discontinued operations                          |   |                                             | 0.00   |   |   |   | 0.00 |   |   |   | - |   |   |   | - |   |   |   | 0.00 |   |
|   Basic income (loss) earnings per common share    |   | $                                                | (0.06  | ) |   | $ | 0.16 |   |   | $ | 0.06 |   |   | $ | 0.35 |   |   | $ | 0.49 |   |
| Diluted income (loss) earnings per common share:             |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing operations                            |   | $                                                | (0.07  | ) |   | $ | 0.16 |   |   | $ | 0.06 |   |   | $ | 0.34 |   |   | $ | 0.49 |   |
|   Discontinued operations                          |   |                                             | 0.00   |   |   |   | 0.00 |   |   |   | - |   |   |   | - |   |   |   | 0.00 |   |
|   Diluted income (loss) earnings per common share  |   | $                                                | (0.06  | ) |   | $ | 0.16 |   |   | $ | 0.06 |   |   | $ | 0.34 |   |   | $ | 0.49 |   |

|                                                  |   | Fiscal 2007 Quarters Ended                       |   |
|-------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                  |   | Sept. 30                                         |   |   | Dec. 31 |   |   | Mar. 31 |   |   | June 30 |   |   | Total |   |
|                                                  |   | (in thousands of dollars, except per share data) |   |
| Revenue                                               |   | $                                                | 9,891  |   |   | $ | 9,442 |   |   | $ | 9,743 |   |   | $ | 10,707 |   |   | $ | 39,783 |   |
| Cost of goods sold                                    |   |                                             | (4,643 | ) |   |   | (4,495 | ) |   |   | (4,223 | ) |   |   | (4,276 | ) |   |   | (17,637 | ) |
| Sales & Marketing                                 |   |                                             | (1,918 | ) |   |   | (1,789 | ) |   |   | (2,004 | ) |   |   | (2,080 | ) |   |   | (7,791 | ) |
| Research and product development                      |   |                                             | (2,079 | ) |   |   | (1,855 | ) |   |   | (1,848 | ) |   |   | (1,753 | ) |   |   | (7,535 | ) |
| General and administrative                            |   |                                             | (809   | ) |   |   | (688 | ) |   |   | (763 | ) |   |   | (831 | ) |   |   | (3,091 | ) |
| Other income, net                                     |   |                                             | 332    |   |   |   | 320 |   |   |   | 577 |   |   |   | 294 |   |   |   | 1,523 |   |
| Income from continuing operations before income taxes |   |                                             | 774    |   |   |   | 935 |   |   |   | 1,482 |   |   |   | 2,061 |   |   |   | 5,252 |   |
| Benefit from (provision for) income taxes        |   |                                             | 19     |   |   |   | (155 | ) |   |   | (167 | ) |   |   | (154 | ) |   |   | (457 | ) |
| Income from continuing operations                     |   |                                             | 793    |   |   |   | 780 |   |   |   | 1,315 |   |   |   | 1,907 |   |   |   | 4,795 |   |
| Income from discontinued operations                   |   |                                             | 37     |   |   |   | 4 |   |   |   | 263 |   |   |   | 118 |   |   |   | 422 |   |
| Net income                                            |   | $                                                | 830    |   |   | $ | 784 |   |   | $ | 1,578 |   |   | $ | 2,025 |   |   | $ | 5,217 |   |
|                                                  |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic income earnings per common share:               |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing operations                     |   | $                                                | 0.07   |   |   | $ | 0.07 |   |   | $ | 0.12 |   |   | $ | 0.18 |   |   | $ | 0.42 |   |
|   Discontinued operations                   |   |                                             | 0.00   |   |   |   | 0.00 |   |   |   | 0.02 |   |   |   | 0.01 |   |   |   | 0.04 |   |
|   Basic income earnings per common share    |   | $                                                | 0.07   |   |   | $ | 0.07 |   |   | $ | 0.14 |   |   | $ | 0.19 |   |   | $ | 0.45 |   |
| Diluted income earnings per common share:             |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Continuing operations                     |   | $                                                | 0.06   |   |   | $ | 0.07 |   |   | $ | 0.12 |   |   | $ | 0.17 |   |   | $ | 0.41 |   |
|   Discontinued operations                   |   |                                             | 0.00   |   |   |   | 0.00 |   |   |   | 0.02 |   |   |   | 0.01 |   |   |   | 0.04 |   |
|   Diluted income earnings per common share  |   | $                                                | 0.07   |   |   | $ | 0.07 |   |   | $ | 0.14 |   |   | $ | 0.18 |   |   | $ | 0.45 |   |

----

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

----

|                                                                     |   | Year Ended June 30,       |   |
|--------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                     |   | 2008                      |   |   | 2007 |   |   | 2006 |   |
|                                                                     |   | (in thousands of dollars) |   |
|                                                                     |   |                      |   |   | % of Revenue |   |   |   |   |   | % of Revenue |   |   |   |   |   | % of Revenue |   |
|                                                                     |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |   | $                         | 38,758 |   |   |   | 100.0% |   |   | $ | 39,783 |   |   |   | 100.0% |   |   | $ | 34,528 |   |   |   | 100.0% |   |
| Cost of goods sold                                                       |   |                      | 16,204 |   |   |   | 41.8% |   |   |   | 17,637 |   |   |   | 44.3% |   |   |   | 16,852 |   |   |   | 48.8% |   |
| Gross profit                                                             |   |                      | 22,554 |   |   |   | 58.2% |   |   |   | 22,146 |   |   |   | 55.7% |   |   |   | 17,676 |   |   |   | 51.2% |   |
| Operating expenses (benefit):                                            |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Sales & Marketing                                        |   |                      | 6,673  |   |   |   | 17.2% |   |   |   | 7,791 |   |   |   | 19.6% |   |   |   | 7,866 |   |   |   | 22.8% |   |
|   Research and product development                             |   |                      | 7,070  |   |   |   | 18.2% |   |   |   | 7,535 |   |   |   | 18.9% |   |   |   | 8,299 |   |   |   | 24.0% |   |
|   General and administrative                                   |   |                      | 7,669  |   |   |   | 19.8% |   |   |   | 3,091 |   |   |   | 7.8% |   |   |   | 5,108 |   |   |   | 14.8% |   |
|   Settlement in shareholders' class action                     |   |                      | -      |   |   |   | 0.0% |   |   |   | - |   |   |   | 0.0% |   |   |   | (1,205 | ) |   |   | -3.5% |   |
| Total operating expenses                                                 |   |                      | 21,412 |   |   |   | 55.2% |   |   |   | 18,417 |   |   |   | 46.3% |   |   |   | 20,068 |   |   |   | 58.1% |   |
| Operating income (loss)                                                  |   |                      | 1,142  |   |   |   | 2.9% |   |   |   | 3,729 |   |   |   | 9.4% |   |   |   | (2,392 | ) |   |   | -6.9% |   |
| Other income, net                                                        |   |                      | 1,005  |   |   |   | 2.6% |   |   |   | 1,523 |   |   |   | 3.8% |   |   |   | 1,016 |   |   |   | 2.9% |   |
| Income (loss) from continuing operations   before income taxes |   |                      | 2,147  |   |   |   | 5.5% |   |   |   | 5,252 |   |   |   | 13.2% |   |   |   | (1,376 | ) |   |   | -4.0% |   |
| Benefit from (provision for) income taxes                           |   |                      | 3,096  |   |   |   | 8.0% |   |   |   | (457 | ) |   |   | -1.1% |   |   |   | 1,005 |   |   |   | 2.9% |   |
| Income (loss) from continuing operations                                 |   |                      | 5,243  |   |   |   | 13.5% |   |   |   | 4,795 |   |   |   | 12.1% |   |   |   | (371 | ) |   |   | -1.1% |   |
| Income from discontinued operations, net of tax                          |   |                      | 16     |   |   |   | 0.0% |   |   |   | 422 |   |   |   | 1.1% |   |   |   | 2,156 |   |   |   | 6.2% |   |
| Net income                                                               |   | $                         | 5,259  |   |   |   | 13.6% |   |   | $ | 5,217 |   |   |   | 13.1% |   |   | $ | 1,785 |   |   |   | 5.2% |   |

----

----

----

|                                                           |   | Years Ended June 30, |   |
|----------------------------------------------------------------|--------|----------------------|--------|
|                                                           |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                           |   |                 |   |   |   |   |   |   |   |
| Total income from discontinued operations, net of income taxes |   |                 |   |   |   |   |   |   |   |
| Conferencing services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | 729 |   |
| OM Video                                                       |   |                 | 16     |   |   |   | 381 |   |   |   | 248 |   |
| Burk Technology                                                |   |                 | -      |   |   |   | - |   |   |   | 953 |   |
| Ken-A-Vision                                                   |   |                 | -      |   |   |   | 41 |   |   |   | 226 |   |
| Total income from discontinued operations, net of income taxes |   | $                    | 16     |   |   | $ | 422 |   |   | $ | 2,156 |   |

----

----

----

| Contractual Obligations |   | Total  |   |   | Less than 1 Year |   |   | 1-3 Years |   |   | 4-5 Years |   |   |  After 5 Years |   |
|-------------------------|--------|--------|--------|--------|------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|---------------------|--------|
|                    |   |   |   |   |             |   |   |      |   |   |      |   |   |                |   |
| Operating Leases        |   | $      | 4,408  |   |             | $      | 701    |      |   | $      | 1,396     |   |   | $                   | 1,345  |   |   | $ | 965 |   |
|                    |   |   |   |   |             |   |   |      |   |   |      |   |   |                |   |   |   |   |   |   |
| Total Contractual       |   |   |   |   |             |   |   |      |   |   |      |   |   |                |   |   |   |   |   |   |
| Cash Obligations        |   | $      | 4,408  |   |             | $      | 701    |      |   | $      | 1,396     |   |   | $                   | 1,345  |   |   | $ | 965 |   |

----

----

----

----

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

----

ITEM 9AT.  CONTROLS AND PROCEDURES

|   | (1) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

ITEM 9B.  OTHER INFORMATION

----

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

----

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

| Exhibit    |                                                                                                                                                                                                         |                   |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
| No.        | Title of Document                                                                                                                                                                                            | Location               |
| 3.1        | Articles of Incorporation and amendments thereto                                                                                                                                                             | Incorp. by reference11 |
| 3.2        | Bylaws                                                                                                                                                                                                       | Incorp. by reference1  |
| 10.1       | Employment Separation Agreement between ClearOne Communications, Inc. and Frances Flood, dated December 5, 2003.*                                                                                            | Incorp. by reference3  |
| 10.2       | Employment Separation Agreement between ClearOne Communications, Inc. and Susie Strohm, dated December 5, 2003.*                                                                                             | Incorp. by reference3  |
| 10.3       | Joint Prosecution and Defense Agreement dated April 1, 2004 between ClearOne Communications, Inc., Parsons Behle & Latimer, Edward Dallin Bagley and Burbidge & Mitchell, and amendment thereto | Incorp. by reference3  |
| 10.4       | 1997 Employee Stock Purchase Plan                                                                                                                                                                            | Incorp. by reference7  |
| 10.5       | 1998 Stock Option Plan                                                                                                                                                                                       | Incorp. by reference7  |
|  10.6 | 2007 Equity Incentive Plan                                                                                                                                                                                   | Incorp. by reference10 |

----

| 10.7  | Manufacturing Agreement between ClearOne Communications, Inc. and Inovar, Inc. dated August 1, 2005                   | Incorp. by reference4 |
|-------|-----------------------------------------------------------------------------------------------------------------------|-----------------------|
| 10.8  | Office Lease between Edgewater Corporate Park, LLC and ClearOne Communications, Inc. dated June 5, 2006               | Incorp. by reference6 |
| 10.9  | Consulting Agreement between Edward D. Bagley and ClearOne Communications, Inc. dated July 6, 2007                    | Incorp. by reference8 |
| 10.10 | Severance Agreement between ClearOne Communications, Inc. and Edward D. Bagley dated July 6, 2007*                    | Incorp. by reference8 |
| 10.11 | Compromise Agreement between ClearOne Communications UK Limited and Martin Offwood dated August 13, 2007*             | Incorp. by reference9 |
| 10.12 | Warehouse Lease Agreement between Woodenshoe Development and Clearone Communications, Inc. dated October 5, 2007      | Incorp. by reference9 |
| 14.1  | Code of Ethics, approved by the Board of Directors on August 23, 2006                                                 | Incorp. by reference6 |
| 21.1  | Subsidiaries of the registrant                                                                                        | This filing           |
| 23.1  | Consent of Jones Simkins P.C., Company’s independent auditors for the year ending June 30, 2008                 | This filing           |
| 23.2  | Consent of Hansen Barnett & Maxwell, P.C., Company’s independent auditors for the year ending June 30, 2006 | This filing           |
| 31.1  | Section 302 Certification of Chief Executive Officer                                                                  | This filing           |
| 31.2  | Section 302 Certification of Principal Financial Officer                                                              | This filing           |
| 32.1  | Section 1350 Certification of Chief Executive Officer                                                                 | This filing           |
| 32.2  | Section 1350 Certification of Principal Financial Officer                                                             | This filing           |

| 1 | Incorporated by reference to the Registrant’s registration statement on Form S-3/A filed with the SEC on November 1, 2002. |
|---|----------------------------------------------------------------------------------------------------------------------------------|

| 3 | Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003. |
|---|-------------------------------------------------------------------------------------------------------------------------|

| 4 | Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004. |
|---|-------------------------------------------------------------------------------------------------------------------------|

|   |
|--------|

| 7 | Incorporated by reference to the Registrant’s registration statement on form S-8 filed with the SEC on October 6, 2006. |
|---|-------------------------------------------------------------------------------------------------------------------------------|

| 8 | Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007. |
|---|-------------------------------------------------------------------------------------------------------------------------|

| 9 | Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
|---|-----------------------------------------------------------------------------------------------------------------------------|

| 10 | Incorporated by reference to the Registrant’s registration statement on Form S-8 filed with the SEC on January 22, 2008. |
|----|--------------------------------------------------------------------------------------------------------------------------------|

| 11 | Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008. |
|----|-------------------------------------------------------------------------------------------------------------------------|

----

SIGNATURES

|            | CLEARONE COMMUNICATIONS, INC. |
|-----------------|-------------------------------|
|            |                          |   |
|            |                          |   |
| October 5, 2009 | By:                           | /s/ Zeynep Hakimoglu |
|            |                          | Zeynep Hakimoglu |
|            |                          | President, Chief Executive Officer, and Chairman |

| Signature              | Title                                            | Date            |
|------------------------|--------------------------------------------------|-----------------|
|                   |                                             |            |
| /s/ Zeynep Hakimoglu   | President, Chief Executive Officer, and Chairman | October 5, 2009 |
| Zeynep Hakimoglu       | (Principal Executive Officer)                    |            |
|                   |                                             |            |
| /s/ Narsi Narayanan    | Vice President of Finance                        | October 5, 2009 |
| Narsi Narayanan        | (Principal Financial and Accounting Officer)     |            |
|                   |                                             |            |
| /s/ Brad R. Baldwin    | Director                                         | October 5, 2009 |
| Brad R. Baldwin        |                                             |            |
|                   |                                             |            |
| /s/ Larry R. Hendricks | Director                                         | October 5, 2009 |
| Larry R. Hendricks     |                                             |            |
|                   |                                             |            |
| /s/ Scott M. Huntsman  | Director                                         | October 5, 2009 |
| Scott M. Huntsman      |                                             |            |

----

|                                                                                                                | Page |
|---------------------------------------------------------------------------------------------------------------------|------|
| Report of Independent Registered Public Accounting Firm – Jones Simkins, P.C.                                 | F-2  |
| Report of Independent Registered Public Accounting Firm – Hansen Barnett & Maxwell, P.C.                  | F-3  |
| Consolidated Balance Sheets as of June 30, 2008 and 2007                                                            | F-4  |
| Consolidated Statements of Operations and Comprehensive Income for fiscal years ended June 30, 2008, 2007, and 2006 | F-5  |
| Consolidated Statements of Shareholders' Equity for fiscal years ended June 30, 2008, 2007, and 2006                | F-7  |
| Consolidated Statements of Cash Flows for fiscal years ended June 30, 2008, 2007, and 2006                          | F-8  |
| Notes to Consolidated Financial Statements                                                                          | F-10 |

----

Report of Independent Registered Public Accounting Firm –

Jones Simkins, P.C.

----

Report of Independent Registered Public Accounting Firm –

Hansen, Barnett & Maxwell, P.C.

----

CONSOLIDATED BALANCE SHEETS

|                                                                                    |   | June 30,     |    |
|-----------------------------------------------------------------------------------------|--------|--------------|---------|
|                                                                                    |   | 2008Restated |    |   | 2007Restated |   |
| ASSETS                                                                                  |   |         |    |   |   |   |
| Current assets:                                                                         |   |         |    |   |   |   |
| Cash and cash equivalents                                                               |   | $            | 3,327   |   |   | $ | 2,782 |   |
| Marketable securities                                                                   |   |         | 5,922   |   |   |   | 19,871 |   |
| Accounts receivable, net of allowance for doubtful accounts                             |   |         |    |   |   |   |   |   |
|      of $87 and $54, respectively                              |   |         | 7,238   |   |   |   | 8,025 |   |
| Deposit, bond for preliminary injunction                                                |   |         | 908     |   |   |   | - |   |
| Note receivable                                                                         |   |         | 43      |   |   |   | 163 |   |
| Inventories, net                                                                        |   |         | 8,129   |   |   |   | 7,335 |   |
| Deferred income taxes                                                                   |   |         | 3,168   |   |   |   | - |   |
| Prepaid expenses and other assets                                                       |   |         | 820     |   |   |   | 213 |   |
| Total current assets                                                                    |   |         | 29,555  |   |   |   | 38,389 |   |
|                                                                                    |   |         |    |   |   |   |   |   |
| Long-term marketable securities                                                         |   |         | 11,168  |   |   |   | - |   |
| Property and equipment, net                                                             |   |         | 2,554   |   |   |   | 2,694 |   |
| Intangible assets, net                                                                  |   |         | 47      |   |   |   | - |   |
| Note receiveable - long-term                                                            |   |         | -       |   |   |   | 43 |   |
| Deferred income taxes                                                                   |   |         | 1,639   |   |   |   | - |   |
| Other assets                                                                            |   |         | 7       |   |   |   | 9 |   |
| Total assets                                                                            |   | $            | 44,970  |   |   | $ | 41,135 |   |
|                                                                                    |   |         |    |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                    |   |         |    |   |   |   |   |   |
| Current liabilities:                                                                    |   |         |    |   |   |   |   |   |
| Accounts payable                                                                        |   | $            | 2,187   |   |   | $ | 1,745 |   |
| Accrued income taxes                                                                    |   |         | 72      |   |   |   | 660 |   |
| Accrued liabilities                                                                     |   |         | 3,600   |   |   |   | 1,874 |   |
| Deferred product revenue                                                                |   |         | 5,795   |   |   |   | 5,125 |   |
| Total current liabilities                                                               |   |         | 11,654  |   |   |   | 9,404 |   |
|                                                                                    |   |         |    |   |   |   |   |   |
| Deferred rent                                                                           |   |         | 700     |   |   |   | 855 |   |
| Other long-term liabilities                                                             |   |         | 1,054   |   |   |   | 619 |   |
| Total liabilities                                                                       |   |         | 13,408  |   |   |   | 10,878 |   |
|                                                                                    |   |         |    |   |   |   |   |   |
| Shareholders' equity:                                                                   |   |         |    |   |   |   |   |   |
| Common stock, par value $0.001, 50,000,000 shares authorized,                           |   |         |    |   |   |   |   |   |
|    10,228,902 and 10,861,920 shares issued and outstanding, respectively |   |         | 10      |   |   |   | 11 |   |
| Additional paid-in capital                                                              |   |         | 44,618  |   |   |   | 47,582 |   |
| Accumulated other comprehensive loss                                                    |   |         | (694    | ) |   |   | - |   |
| Accumulated deficit                                                                     |   |         | (12,372 | ) |   |   | (17,336 | ) |
| Total shareholders' equity                                                              |   |         | 31,562  |   |   |   | 30,257 |   |
| Total liabilities and shareholders' equity                                              |   | $            | 44,970  |   |   | $ | 41,135 |   |
|                                                                                    |   |         |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements                             |   |

----

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

|                                                             |   | Years Ended June 30, |   |
|------------------------------------------------------------------|--------|----------------------|--------|
|                                                             |   | 2008Restated         |   |   | 2007Restated |   |   | 2006Restated |   |
|                                                             |   |                 |   |   |   |   |   |   |   |
| Revenue                                                          |   | $                    | 38,758 |   |   | $ | 39,783 |   |   | $ | 34,528 |   |
| Cost of goods sold                                               |   |                 | 16,204 |   |   |   | 17,637 |   |   |   | 16,852 |   |
| Gross profit                                                     |   |                 | 22,554 |   |   |   | 22,146 |   |   |   | 17,676 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                              |   |                 |   |   |   |   |   |   |   |   |   |   |
| Sales & marketing                                            |   |                 | 6,673  |   |   |   | 7,791 |   |   |   | 7,866 |   |
| Research and product development                                 |   |                 | 7,070  |   |   |   | 7,535 |   |   |   | 8,299 |   |
| General and administrative                                       |   |                 | 7,669  |   |   |   | 3,091 |   |   |   | 5,108 |   |
| Settlement in shareholders' class action                         |   |                 | -      |   |   |   | - |   |   |   | (1,205 | ) |
| Total operating expenses                                         |   |                 | 21,412 |   |   |   | 18,417 |   |   |   | 20,068 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                          |   |                 | 1,142  |   |   |   | 3,729 |   |   |   | (2,392 | ) |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Other income (expense), net:                                     |   |                 |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                  |   |                 | 1,039  |   |   |   | 1,468 |   |   |   | 813 |   |
| Interest expense                                                 |   |                 | (5     | ) |   |   | (4 | ) |   |   | - |   |
| Other, net                                                       |   |                 | (29    | ) |   |   | 59 |   |   |   | 203 |   |
| Total other income, net                                          |   |                 | 1,005  |   |   |   | 1,523 |   |   |   | 1,016 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from continuing operations before income taxes     |   |                 | 2,147  |   |   |   | 5,252 |   |   |   | (1,376 | ) |
| Benefit from (provision for) income taxes                   |   |                 | 3,096  |   |   |   | (457 | ) |   |   | 1,005 |   |
| Income (loss) from continuing operations                         |   |                 | 5,243  |   |   |   | 4,795 |   |   |   | (371 | ) |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations:                                         |   |                 |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations                              |   |                 | -      |   |   |   | 75 |   |   |   | 361 |   |
| Gain on disposal of discontinued operations                      |   |                 | 25     |   |   |   | 598 |   |   |   | 2,726 |   |
| Income tax provision                                             |   |                 | (9     | ) |   |   | (251 | ) |   |   | (931 | ) |
| Income from discontinued operations                              |   |                 | 16     |   |   |   | 422 |   |   |   | 2,156 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Net income                                                       |   | $                    | 5,259  |   |   | $ | 5,217 |   |   | $ | 1,785 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income:                                            |   |                 |   |   |   |   |   |   |   |   |   |   |
| Net income                                                       |   | $                    | 5,259  |   |   | $ | 5,217 |   |   | $ | 1,785 |   |
| Unrealized (loss) on marketable securities, net of taxes of $413 |   | $                    | (694   | ) |   | $ | - |   |   | $ | - |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                             |   | $                    | 4,565  |   |   | $ | 5,217 |   |   | $ | 1,785 |   |
|                                                             |   |                 |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements      |   |

----

|                                                                |   | Years Ended June 30, |       |
|---------------------------------------------------------------------|--------|----------------------|------------|
|                                                                |   | 2008Restated         |       |   | 2007Restated |   |   | 2006Restated |   |
|                                                                |   |                 |       |   |   |   |   |   |   |
| Basic earnings (loss) per common share from continuing operations   |   | $                    | 0.49       |   |   | $ | 0.42 |   |   | $ | (0.03 | ) |
| Diluted earnings (loss) per common share from continuing operations |   | $                    | 0.49       |   |   | $ | 0.41 |   |   | $ | (0.03 | ) |
|                                                                |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic earnings per common share from discontinued operations        |   | $                    | -          |   |   | $ | 0.04 |   |   | $ | 0.18 |   |
| Diluted earnings per common share from discontinued operations      |   | $                    | -          |   |   | $ | 0.04 |   |   | $ | 0.18 |   |
|                                                                |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic earnings per common share                                     |   | $                    | 0.49       |   |   | $ | 0.45 |   |   | $ | 0.15 |   |
| Diluted earnings per common share                                   |   | $                    | 0.49       |   |   | $ | 0.45 |   |   | $ | 0.15 |   |
|                                                                |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic weighted average shares outstanding                           |   |                 | 10,694,401 |   |   |   | 11,497,773 |   |   |   | 11,957,756 |   |
| Diluted weighted average shares outstanding                         |   |                 | 10,798,281 |   |   |   | 11,575,721 |   |   |   | 12,206,618 |   |
|                                                                |   |                 |       |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements         |   |

----

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   | Accumulated |   |   |          |   |   |       |   |
|-------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|------------|--------|--------|---------------|--------|--------|-------------|--------|--------|---------------|--------|--------|------------|--------|
|                                                        |   |         |       |   |    |   |   | Additional |   |   |          |   |   | Other       |   |   |          |   |   | Total      |   |
|                                                        |   | Common Stock |       |   | Paid-In |   |   | Deferred   |   |   | Comprehensive |   |   | Accumulated |   |   | Shareholders' |   |
|                                                        |   | Shares       |       |   | Amount  |   |   | Capital    |   |   | Compensation  |   |   | Income      |   |   | Deficit       |   |   | Equity     |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   | (restated)    |   |   | (restated) |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |
| Balances at June 30, 2005                                   |   |         | 11,264,233 |   |    | $      | 11     |       |   | $      | 49,393        |   |   | $           | (33    | )      |          | $      | -      |       |   | $ | (24,338 | ) |   | $ | 25,033 |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|   Issuance of common shares                       |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     related to shareholder              |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     settlement agreement                |   |         | 920,494    |   |    |   | 1      |       |   |   | 2,263         |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 2,264 |   |
|   Compensation expense                            |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     resulting from the                  |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     modification of stock               |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     options                             |   |         | -          |   |    |   | -      |       |   |   | 16            |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 16 |   |
|   Compensation cost                               |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     associated with                |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     SFAS No. 123R                       |   |         | -          |   |    |   | -      |       |   |   | 1,092         |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 1,092 |   |
|   SFAS No. 123R transition                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     expense                             |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | 33     |   |          |   | -      |       |   |   | - |   |   |   | 33 |   |
|   Net income                                      |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |       |   |   | 1,785 |   |   |   | 1,785 |   |
| Balances at June 30, 2006                                   |   |         | 12,184,727 |   |    |   | 12     |       |   |   | 52,764        |   |   |        | -      |   |          |   | -      |       |   |   | (22,553 | ) |   |   | 30,223 |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|   Tender offer                                    |   |         | (1,073,552 | )      |    |   | (1     | )          |   |   | (4,602        | )      |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | (4,603 | ) |
|   Stock buy back program                          |   |         | (265,360   | )      |    |   | -      |       |   |   | (1,450        | )      |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | (1,450 | ) |
|   Exercise of stock options                       |   |         | 15,940     |   |    |   | -      |       |   |   | 54            |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 54 |   |
|   Tax benefit stock option                             |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     exercise                                 |   |         | -          |   |    |   | -      |       |   |   | 9             |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 9 |   |
|   Compensation cost                               |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     associated with                     |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     SFAS No. 123R                       |   |         | -          |   |    |   | -      |       |   |   | 802           |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 802 |   |
|   Employee stock purchase                         |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|      program                            |   |         | 165        |   |    |   | -      |       |   |   | 4             |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 4 |   |
|   Net income                                      |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |       |   |   | 5,217 |   |   |   | 5,217 |   |
| Balances at June 30, 2007                                   |   |         | 10,861,920 |   |    |   | 11     |       |   |   | 47,582        |   |   |        | -      |   |          |   | -      |       |   |   | (17,336 | ) |   |   | 30,257 |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|   Stock buy back program                          |   |         | (834,646   | )      |    |   | (1     | )          |   |   | (4,354        | )      |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | (4,355 | ) |
|   Exercise of stock options                       |   |         | 228,368    |   |    |   | -      |       |   |   | 792           |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 792 |   |
|   Shares received/retired upon                    |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     exercise of stock options           |   |         | (28,066    | )      |    |   | -      |       |   |   | (186          | )      |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | (186 | ) |
|   Tax benefit stock option                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     exercise                                      |   |         | -          |   |    |   | -      |       |   |   | 70            |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 70 |   |
|   Compensation cost                               |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     associated with                     |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     SFAS No. 123R                       |   |         | -          |   |    |   | -      |       |   |   | 707           |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 707 |   |
|   Employee stock purchase               |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     program                                  |   |         | 1,326      |   |    |   | -      |       |   |   | 7             |   |   |        | -      |   |          |   | -      |       |   |   | - |   |   |   | 7 |   |
|   Adoption of FIN 48                              |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |       |   |   | (295 | ) |   |   | (295 | ) |
|   Unrealized (loss) on                            |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     marketable securities,              |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
|     net of tax                               |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | (694   | )          |   |   | - |   |   |   | (694 | ) |
|   Net income                                      |   |         | -          |   |    |   | -      |       |   |   | -             |   |   |        | -      |   |          |   | -      |       |   |   | 5,259 |   |   |   | 5,259 |   |
| Balances at June 30, 2008                                   |   |         | 10,228,902 |   |    | $      | 10     |       |   | $      | 44,618        |   |   | $           | -      |   |          | $      | (694   | )          |   | $ | (12,372 | ) |   | $ | 31,562 |   |
|                                                        |   |         |       |   |    |   |   |       |   |   |          |   |   |        |   |   |          |   |   |       |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements |   |

----

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                  |   | Years Ended June 30, |    |
|-----------------------------------------------------------------------|--------|----------------------|---------|
|                                                                  |   | 2008Restated         |    |   | 2007Restated |   |   | 2006Restated |   |
| Cash flows from operating activities:                                 |   |                 |    |   |   |   |   |   |   |
| Net income (loss) from continuing operations                          |   | $                    | 5,243   |   |   | $ | 4,795 |   |   | $ | (371 | ) |
| Adjustments to reconcile net income (loss) from continuing operations |   |                 |    |   |   |   |   |   |   |   |   |   |
| to net cash provided by operations:                                   |   |                 |    |   |   |   |   |   |   |   |   |   |
| Impairment on marketable securities                                   |   |                 | 155     |   |   |   | - |   |   |   | - |   |
| Depreciation and amortization expense                                 |   |                 | 767     |   |   |   | 870 |   |   |   | 1,389 |   |
| Stock-based compensation                                              |   |                 | 714     |   |   |   | 806 |   |   |   | 1,140 |   |
| Write-off of inventory                                                |   |                 | 136     |   |   |   | 660 |   |   |   | 681 |   |
| Loss (gain) on disposal of assets                                |   |                 | 6       |   |   |   | (58 | ) |   |   | (237 | ) |
| Provision for doubtful accounts                                       |   |                 | 33      |   |   |   | 5 |   |   |   | 3 |   |
| Changes in operating assets and liabilities:                          |   |                 |    |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                   |   |                 | 322     |   |   |   | (261 | ) |   |   | (928 | ) |
| Deferred taxes                                                        |   |                 | (4,807  | ) |   |   | - |   |   |   | - |   |
| Deposit - bond for preliminary injunction                             |   |                 | (908    | ) |   |   | - |   |   |   | - |   |
| Notes receivable                                                      |   |                 | 163     |   |   |   | (206 | ) |   |   | - |   |
| Inventories                                                           |   |                 | (929    | ) |   |   | (1,394 | ) |   |   | (2,759 | ) |
| Prepaids and other assets                                             |   |                 | (590    | ) |   |   | 40 |   |   |   | 45 |   |
| Accounts payable                                                      |   |                 | 875     |   |   |   | (811 | ) |   |   | 434 |   |
| Accrued liabilities                                                   |   |                 | 1,726   |   |   |   | (673 | ) |   |   | (960 | ) |
| Other long term liabilities                                           |   |                 | -       |   |   |   | 619 |   |   |   | - |   |
| Accrued income taxes                                                  |   |                 | (50     | ) |   |   | 3,267 |   |   |   | 1,345 |   |
| Deferred product revenue                                              |   |                 | 669     |   |   |   | (922 | ) |   |   | 1,650 |   |
| Net cash provided by continuing operating activities                  |   |                 | 3,525   |   |   |   | 6,737 |   |   |   | 1,432 |   |
| Net cash provided by discontinued operating activities                |   |                 | -       |   |   |   | 47 |   |   |   | 730 |   |
| Net cash provided by operating activities                             |   |                 | 3,525   |   |   |   | 6,784 |   |   |   | 2,162 |   |
|                                                                  |   |                 |    |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                 |   |                 |    |   |   |   |   |   |   |   |   |   |
| Purchase of property and equipment                                    |   |                 | (786    | ) |   |   | (909 | ) |   |   | (224 | ) |
| Purchase of intangible assets                                         |   |                 | (49     | ) |   |   | - |   |   |   | - |   |
| Proceeds from the sale of property and equipment                      |   |                 | -       |   |   |   | 35 |   |   |   | 230 |   |
| Purchase of marketable securities                                     |   |                 | (15,378 | ) |   |   | (23,369 | ) |   |   | (14,800 | ) |
| Sale of marketable securities                                         |   |                 | 16,897  |   |   |   | 24,050 |   |   |   | 10,050 |   |
| Net cash provided by (used in) continuing investing activities        |   |                 | 684     |   |   |   | (193 | ) |   |   | (4,744 | ) |
| Net cash provided by discontinued investing activities                |   |                 | 16      |   |   |   | 941 |   |   |   | 1,930 |   |
| Net cash provided by (used in) investing activities                   |   |                 | 700     |   |   |   | 748 |   |   |   | (2,814 | ) |
|                                                                  |   |                 |    |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                 |   |                 |    |   |   |   |   |   |   |   |   |   |
| Proceeds from the issuance of common stock - options                  |   |                 | 605     |   |   |   | 54 |   |   |   | - |   |
| Common stock purchased and retired                                    |   |                 | (4,355  | ) |   |   | (6,053 | ) |   |   | - |   |
| Tax benefit from stock options                                        |   |                 | 70      |   |   |   | 9 |   |   |   | - |   |
| Net cash used in financing activities                                 |   |                 | (3,680  | ) |   |   | (5,990 | ) |   |   | - |   |
|                                                                  |   |                 |    |   |   |   |   |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                  |   |                 | 545     |   |   |   | 1,542 |   |   |   | (652 | ) |
| Cash and cash equivalents at the beginning of the year                |   |                 | 2,782   |   |   |   | 1,240 |   |   |   | 1,892 |   |
| Cash and cash equivalents at the end of the year                      |   | $                    | 3,327   |   |   | $ | 2,782 |   |   | $ | 1,240 |   |
|                                                                  |   |                 |    |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements           |   |

----

|                                                              |   | Years Ended June 30, |   |
|-------------------------------------------------------------------|--------|----------------------|--------|
|                                                              |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                              |   |                 |   |   |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                 |   |                 |   |   |   |   |   |   |   |
| Cash paid for interest                                            |   | $                    | 5      |   |   | $ | 4 |   |   | $ | - |   |
| Cash paid (received) for income taxes                             |   |                 | 1,701  |   |   |   | (3,202 | ) |   |   | (1,419 | ) |
|                                                              |   |                 |   |   |   |   |   |   |   |   |   |   |
| Supplemental disclosure of non-cash financing activities:         |   |                 |   |   |   |   |   |   |   |   |   |   |
|     Adoption of FIN48                         |   | $                    | 295    |   |   | $ | - |   |   | $ | - |   |
| Exchanged accounts receivable from a vendor with accounts payable |   |                 |   |   |   |   |   |   |   |   |   |   |
| to the same vendor                                                |   |                 | 432    |   |   |   | 15 |   |   |   | - |   |
| Lease incentive for leasehold improvements                        |   |                 | -      |   |   |   | 1,088 |   |   |   | - |   |
| Sales of property and equipment for accounts payable              |   |                 | -      |   |   |   | 25 |   |   |   | - |   |
| Value of common shares issued in shareholder settlement           |   |                 | -      |   |   |   | - |   |   |   | 2,264 |   |
|                                                              |   |                 |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements       |   |

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

----

----

| Description              |   | Balance at Beginning of Period |   |   | Charged to Costs and Expenses |   |   | Deductions |   |   | Balance at End of Period |   |
|--------------------------|--------|--------------------------------|--------|--------|-------------------------------|--------|--------|------------|--------|--------|--------------------------|--------|
|                     |   |                           |   |   |                          |   |   |       |   |   |                     |   |
| Year ended June 30, 2007 |   | $                              | 49     |   |                          | $      | 12     |       |   | $      | (7                       | )      |   | $ | 54 |   |
|                     |   |                           |   |   |                          |   |   |       |   |   |                     |   |   |   |   |   |
| Year ended June 30, 2008 |   | $                              | 54     |   |                          | $      | 33     |       |   | $      | -                        |   |   | $ | 87 |   |

----

|          |   | Deferred Revenue |   |   | Deferred Cost of Goods Sold |   |   | Deferred Gross Profit |   |
|---------------|--------|------------------|--------|--------|-----------------------------|--------|--------|-----------------------|--------|
|          |   |             |   |   |                        |   |   |                  |   |
| June 30, 2008 |   | $                | 5,795  |   |                        | $      | 2,047  |                  |   | $ | 3,748 |   |
| June 30, 2007 |   |             | 5,125  |   |                        |   | 2,187  |                  |   |   | 2,938 |   |
| June 30, 2006 |   |             | 6,071  |   |                        |   | 2,824  |                  |   |   | 3,247 |   |

|                             |   | Years Ended June 30, |   |
|----------------------------------|--------|----------------------|--------|
|                             |   | 2008                 |   |   | 2007 |   |
|                             |   |                 |   |   |   |   |
| Balance at the beginning of year |   | $                    | 125    |   |   | $ | 169 |   |
| Accruals/additions               |   |                 | 329    |   |   |   | 241 |   |
| Usage                            |   |                 | (243   | ) |   |   | (285 | ) |
| Balance at end of year           |   | $                    | 211    |   |   | $ | 125 |   |

----

|                                                          |   | Years Ended June 30, |       |
|---------------------------------------------------------------|--------|----------------------|------------|
|                                                          |   | 2008                 |       |   | 2007 |   |   | 2006 |   |
| Numerator:                                                    |   |                 |       |   |   |   |   |   |   |
| Income (loss) from continuing operations                      |   | $                    | 5,243      |   |   | $ | 4,795 |   |   | $ | (371 | ) |
| Income from discontinued operations, net of tax               |   |                 | -          |   |   |   | 47 |   |   |   | 226 |   |
| Gain on disposal of discontinued operations, net of tax       |   |                 | 16         |   |   |   | 375 |   |   |   | 1,930 |   |
| Net income                                                    |   | $                    | 5,259      |   |   | $ | 5,217 |   |   | $ | 1,785 |   |
| Denominator:                                                  |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic weighted average shares                                 |   |                 | 10,694,401 |   |   |   | 11,497,773 |   |   |   | 11,957,756 |   |
| Dilutive common stock equivalents using treasury stock method |   |                 | 103,880    |   |   |   | 77,948 |   |   |   | 248,862 |   |
| Diluted weighted average shares                               |   |                 | 10,798,281 |   |   |   | 11,575,721 |   |   |   | 12,206,618 |   |
|                                                          |   |                 |       |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per common share:                       |   |                 |       |   |   |   |   |   |   |   |   |   |
| Continuing operations                                         |   | $                    | 0.49       |   |   | $ | 0.42 |   |   | $ | (0.03 | ) |
| Discontinued operations                                       |   | $                    | 0.00       |   |   | $ | 0.00 |   |   | $ | 0.02 |   |
| Disposal of discontinued operations                           |   | $                    | 0.00       |   |   | $ | 0.03 |   |   | $ | 0.16 |   |
| Net income                                                    |   | $                    | 0.49       |   |   | $ | 0.45 |   |   | $ | 0.15 |   |
| Diluted earnings (loss) per common share:                     |   |                 |       |   |   |   |   |   |   |   |   |   |
| Continuing operations                                         |   | $                    | 0.49       |   |   | $ | 0.41 |   |   | $ | (0.03 | ) |
| Discontinued operations                                       |   | $                    | 0.00       |   |   | $ | 0.00 |   |   | $ | 0.02 |   |
| Disposal of discontinued operations                           |   | $                    | 0.00       |   |   | $ | 0.03 |   |   | $ | 0.16 |   |
| Net income                                                    |   | $                    | 0.49       |   |   | $ | 0.45 |   |   | $ | 0.15 |   |

----

----

|                                                           |   | Years Ended June 30, |   |
|----------------------------------------------------------------|--------|----------------------|--------|
|                                                           |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                           |   |                 |   |   |   |   |   |   |   |
| Income from discontinued operations                            |   |                 |   |   |   |   |   |   |   |
| Ken-A-Vision                                                   |   | $                    | -      |   |   | $ | 75 |   |   | $ | 361 |   |
| Total income from discontinued operations                      |   |                 | -      |   |   |   | 75 |   |   |   | 361 |   |
|                                                           |   |                 |   |   |   |   |   |   |   |   |   |   |
| Gain (loss) on disposal of discontinued operations             |   |                 |   |   |   |   |   |   |   |   |   |   |
| Conferencing services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | 1,030 |   |
| OM Video                                                       |   |                 | 25     |   |   |   | 607 |   |   |   | 350 |   |
| Burk Technology                                                |   |                 | -      |   |   |   | - |   |   |   | 1,346 |   |
| Ken-A-Vision                                                   |   |                 | -      |   |   |   | (9 | ) |   |   | - |   |
| Total gain on disposal of discontinued operations              |   |                 | 25     |   |   |   | 598 |   |   |   | 2,726 |   |
|                                                           |   |                 |   |   |   |   |   |   |   |   |   |   |
| Income tax provision                                           |   |                 |   |   |   |   |   |   |   |   |   |   |
| Conferencing services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | (301 | ) |
| OM Video                                                       |   |                 | (9     | ) |   |   | (227 | ) |   |   | (102 | ) |
| Burk Technology                                                |   |                 | -      |   |   |   | - |   |   |   | (393 | ) |
| Ken-A-Vision                                                   |   |                 | -      |   |   |   | (24 | ) |   |   | (135 | ) |
| Total income tax provision                                     |   |                 | (9     | ) |   |   | (251 | ) |   |   | (931 | ) |
|                                                           |   |                 |   |   |   |   |   |   |   |   |   |   |
| Total income from discontinued operations, net of income taxes |   |                 |   |   |   |   |   |   |   |   |   |   |
| Conferencing services business                                 |   | $                    | -      |   |   | $ | - |   |   | $ | 729 |   |
| OM Video                                                       |   |                 | 16     |   |   |   | 380 |   |   |   | 248 |   |
| Burk Technology                                                |   |                 | -      |   |   |   | - |   |   |   | 953 |   |
| Ken-A-Vision                                                   |   |                 | -      |   |   |   | 42 |   |   |   | 226 |   |
| Total income from discontinued operations, net of income taxes |   | $                    | 16     |   |   | $ | 422 |   |   | $ | 2,156 |   |

----

----

|                 |   | Year Ended June 30, |   |
|----------------------|--------|---------------------|--------|
|                 |   | 2006                |   |
|                 |   |                |   |
| Inventory            |   | $                   | 411    |   |
| Patents, net         |   |                | 154    |   |
| Total current assets |   | $                   | 565    |   |

|                                |   | Year Ended June 30, |   |
|-------------------------------------|--------|---------------------|--------|
|                                |   | 2008                |   |   | 2007 |   |   | 2006 |   |
|                                |   |                |   |   |   |   |   |   |   |
| Revenue                             |   | $                   | -      |   |   | $ | 648 |   |   | $ | 2,269 |   |
| Cost of goods sold                  |   |                | -      |   |   |   | 573 |   |   |   | 1,908 |   |
| Gross profit                        |   |                | -      |   |   |   | 75 |   |   |   | 361 |   |
| Loss on disposal                    |   |                | -      |   |   |   | (9 | ) |   |   | - |   |
| Provision for income taxes          |   |                | -      |   |   |   | (24 | ) |   |   | (135 | ) |
| Income from discontinued operations |   | $                   | -      |   |   | $ | 42 |   |   | $ | 226 |   |

|                |   | As of June 30, |   |
|---------------------|--------|----------------|--------|
|                |   | 2008           |   |   | 2007 |   |
|                |   |           |   |   |   |   |
| Raw materials       |   | $              | 724    |   |   | $ | 453 |   |
| Finished goods      |   |           | 5,356  |   |   |   | 4,695 |   |
| Consigned inventory |   |           | 2,049  |   |   |   | 2,187 |   |
| Total inventory     |   | $              | 8,129  |   |   | $ | 7,335 |   |

----

|                                          | Estimated     |   | As of June 30, |   |
|-----------------------------------------------|---------------|--------|----------------|--------|
|                                          | useful lives  |   | 2008           |   |   | 2007 |   |
|                                          |          |   |           |   |   |   |   |
| Office furniture and equipment                | 3 to 10 years |   | $              | 8,197  |   |   | $ | 7,825 |   |
| Leasehold improvements                        | 1 to 6 years  |   |           | 1,309  |   |   |   | 1,289 |   |
| Manufacturing and test equipment              | 2 to 10 years |   |           | 1,532  |   |   |   | 1,433 |   |
|                                          |          |   |           | 11,038 |   |   |   | 10,547 |   |
| Accumulated depreciation and amortization     |          |   |           | (8,484 | ) |   |   | (7,853 | ) |
|    Property and equipment, net |          |   | $              | 2,554  |   |   | $ | 2,694 |   |

| Description of Securities |   | Total - All Less than 12 Months |   |
|---------------------------|--------|---------------------------------|--------|
|                      |   | Fair Value                      |   |   | Unrealized Losses |   |
| Marketable Securities     |   | $                               | 17,090 |   |   | $ | 1,107 |   |

----

|                                                                 |   | Year ending June 30, |   |
|----------------------------------------------------------------------|--------|----------------------|--------|
|                                                                 |   | 2008                 |   |   | 2007 |   |
| Balance, beginning of year                                           |   | $                    | -      |   |   | $ | - |   |
| Unrealized holding (losses), in marketable securities (before taxes) |   |                 | (1,107 | ) |   |   | - |   |
| Income tax benefit                                                   |   |                 | 413    |   |   |   | - |   |
| Balance, end of year                                                 |   | $                    | (694   | ) |   | $ | - |   |

----

|                                                    |   | Year ending June 30, |   |
|---------------------------------------------------------|--------|---------------------------|--------|
|                                                    |   | 2008                      |   |   | 2007 |   |
| Net income                                              |   | $                         | 5,259  |   |   | $ | 5,217 |   |
| Other comprehensive income (loss):                      |   |                      |   |   |   |   |   |   |
| Unrealized gain (loss) on available-for-sale investment |   |                      | (1,107 | ) |   |   | - |   |
| Income tax benefit                                      |   |                      | 413    |   |   |   | - |   |
|                                                    |   | $                         | 4,565  |   |   | $ | 5,217 |   |

| Years Ending June 30,        |   |
|------------------------------|--------|
| 2009                         |   | $ | 701 |   |
| 2010                         |   |   | 695 |   |
| 2011                         |   |   | 682 |   |
| 2012                         |   |   | 663 |   |
| 2013                         |   |   | 644 |   |
| Thereafter                   |   |   | 1,023 |   |
| Total minimum lease payments |   | $ | 4,408 |   |

----

|                                    |   | As of June 30, |   |
|-----------------------------------------|--------|----------------|--------|
|                                    |   | 2008           |   |   | 2007 |   |
| Accrued salaries and other compensation |   | $              | 974    |   |   | $ | 1,027 |   |
| Other accrued liabilities               |   |           | 2,626  |   |   |   | 847 |   |
| Total                                   |   | $              | 3,600  |   |   | $ | 1,874 |   |

----

----

----

|                               | Fiscal Year Ended June 30, |
|------------------------------------|----------------------------|
|                               | 2008                       | 2007 | 2006 |
| Risk-free interest rate, average   | 4.5%                       | 4.8% | 4.4% |
| Expected option life, average      | 4.3 years                  | 4.6 years | 5.9 years |
| Expected price volatility, average | 73.9%                      | 88.3% | 87.2% |
| Expected dividend yield            | 0.0%                       | 0.0% | 0.0% |
| Expected annual forfeiture rate    | 10.0%                      | 10.0% | 10.0% |

----

|                                                |   | Year Ended June 30, 2006 |   |
|-----------------------------------------------------|--------|--------------------------|--------|
|                                                |   | (in thousands)           |   |
|                                                |   |                     |   |   |   |   |
|                                                |   |                     |   |   | SFAS |   |
|                                                |   |                     |   |   | No. 123R |   |
|                                                |   |                     |   |   | Compensation |   |
|                                                |   | As Reported              |   |   | Expense |   |
|                                                |   |                     |   |   |   |   |
| Revenue                                             |   | $                        | 34,528 |   |   | $ | - |   |
| Cost of goods sold                                  |   |                     | 16,852 |   |   |   | (49 | ) |
| Gross profit                                        |   |                     | 17,676 |   |   |   | 49 |   |
| Operating expenses:                                 |   |                     |   |   |   |   |   |   |
| Sales and marketing                                 |   |                     | 7,866  |   |   |   | (99 | ) |
| Research and product development                    |   |                     | 8,299  |   |   |   | (203 | ) |
| General and administrative                          |   |                     | 5,108  |   |   |   | (756 | ) |
| Settlement in shareholders' class action            |   |                     | (1,205 | ) |   |   | - |   |
| Total operating expenses                            |   |                     | 20,068 |   |   |   | (1,058 | ) |
| Operating loss                                      |   |                     | (2,392 | ) |   |   | 1,107 |   |
| Other income, net                                   |   |                     | 1,016  |   |   |   | 34 |   |
| Loss from continuing operations before income taxes |   |                     | (1,376 | ) |   |   | 1,141 |   |
| Benefit for income taxes                            |   |                     | 1,005  |   |   |   | (264 | ) |
| Income from continuing operations                   |   |                     | (371   | ) |   |   | 877 |   |
| Income from discontinued operations, net of tax     |   |                     | 2,156  |   |   |   | - |   |
| Net income                                          |   | $                        | 1,785  |   |   | $ | 877 |   |
|                                                |   |                     |   |   |   |   |   |   |
| Basic earnings (loss) per common share:             |   |                     |   |   |   |   |   |   |
| Continuing operations                               |   | $                        | (0.03  | ) |   | $ | 0.07 |   |
| Discontinued operations                             |   |                     | 0.18   |   |   |   | - |   |
| Net income                                          |   |                     | 0.15   |   |   |   | 0.07 |   |
| Diluted earnings (loss) per common share:           |   |                     |   |   |   |   |   |   |
| Continuing operations                               |   | $                        | (0.03  | ) |   | $ | 0.07 |   |
| Discontinued operations                             |   |                     | 0.18   |   |   |   | - |   |
| Net income                                          |   |                     | 0.15   |   |   |   | 0.07 |   |

----

| Stock Options                |   | Number of Shares |      |   | Weighted Average Exercise Price |   |
|------------------------------|--------|------------------|-----------|--------|---------------------------------|--------|
|                         |   |             |      |   |                            |   |
| Outstanding at June 30, 2005 |   |             | 1,493,112 |   |                            |   | 6.21 |   |
|                         |   |             |      |   |                            |   |   |   |
| Granted                      |   |             | 29,000    |   |                            |   | 2.63 |   |
| Expired and canceled         |   |             | (118,353  | )      |                            |   | 3.55 |   |
| Forfeited prior to vesting   |   |             | (165,839  | )      |                            |   | 8.11 |   |
| Exercised                    |   |             | -         |   |                            |   | - |   |
| Outstanding at June 30, 2006 |   |             | 1,237,920 |   |                            |   | 6.12 |   |
|                         |   |             |      |   |                            |   |   |   |
| Granted                      |   |             | 436,500   |   |                            |   | 3.84 |   |
| Expired and canceled         |   |             | (329,316  | )      |                            |   | 6.45 |   |
| Forfeited prior to vesting   |   |             | (55,965   | )      |                            |   | 3.94 |   |
| Exercised                    |   |             | (15,940   | )      |                            |   | 3.41 |   |
| Outstanding at June 30, 2007 |   |             | 1,273,199 |   |                            |   | 5.38 |   |
|                         |   |             |      |   |                            |   |   |   |
| Granted                      |   |             | 319,000   |   |                            |   | 6.13 |   |
| Expired and canceled         |   |             | (68,058   | )      |                            |   | 7.39 |   |
| Forfeited prior to vesting   |   |             | (96,727   | )      |                            |   | 5.23 |   |
| Exercised                    |   |             | (228,368  | )      |                            |   | 3.47 |   |
| Outstanding at June 30, 2008 |   |             | 1,199,046 |   |                            |   | 5.85 |   |
| Exercisable                  |   |             | 747,736   |   |                            |   | 6.07 |   |

|                 |            |   | Options Outstanding |      | Options Exercisable |                            |
|----------------------|-----------------|--------|---------------------|-----------|---------------------|---------------------------------|
| Exercise Price Range |            |   | Number of Shares    |      |                | Weighted Average Exercise Price |   | Weighted Average Contractual Term (Years) |   | Options Exercisable |   |   | Weighted Average Exercise Price |   |
|                 |            |   |                |      |                |                            |   |   |   |   |   |   |   |   |
| $                    | 0.00 to $4.00   |   |                |      | 486,442             |                            |   | $ | 3.45 |   | 7.0 years |   |   | 352,442 |   |   | $ | 3.41 |   |
| $                    | 4.01 to $8.00   |   |                |      | 572,354             |                            |   |   | 5.99 |   | 7.6 years |   |   | 268,470 |   |   |   | 5.98 |   |
| $                    | 8.01 to $12.00  |   |                |      | 52,500              |                            |   |   | 11.83 |   | 2.1 years |   |   | 51,688 |   |   |   | 11.86 |   |
| $                    | 12.01 to $16.00 |   |                |      | 87,000              |                            |   |   | 14.64 |   | 1.8 years |   |   | 74,713 |   |   |   | 14.87 |   |
| $                    | 16.01 to $20.00 |   |                |      | 750                 |                            |   |   | 18.80 |   | 1.8 years |   |   | 423 |   |   |   | 19.13 |   |
| Total                |            |   |                | 1,199,046 |                |                            | $ | 5.85 |   | 6.7 years |   |   | 747,736 |   |   | $ | 6.07 |   |

----

| Non-vested Shares           |   | Number of Shares |     |   | Weighted AverageGrant-Date Fair Value |   |
|-----------------------------|--------|------------------|----------|--------|---------------------------------------|--------|
|                        |   |             |     |   |                                  |   |
| Non-vested at June 30, 2007 |   |             | 478,654  |   |                                  | $      | 2.87 |   |
|                        |   |             |     |   |                                  |   |   |   |
| Granted                     |   |             | 319,000  |   |                                  |   | 3.69 |   |
| Vested                      |   |             | (249,617 | )      |                                  |   | 2.68 |   |
| Forfeited prior to vesting  |   |             | (96,727  | )      |                                  |   | 3.38 |   |
| Non-vested at June 30, 2008 |   |             | 451,310  |   |                                  | $      | 3.44 |   |

|       |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Customer A |   |   | 31.0%  |   |   |   | 30.4%  |   |   |   | 24.6% |   |
| Customer B |   |   | 14.4%  |   |   |   | 13.4%  |   |   |   | 16.6% |   |
| Customer C |   |   | 14.4%  |   |   |   | 12.8%  |   |   |   | 15.0% |   |
| Total      |   |   | 59.8%  |   |   |   | 56.6%  |   |   |   | 56.2% |   |

----

|       |   | 2008   |   |   | 2007   |   |
|------------|--------|--------|--------|--------|--------|--------|
| Customer A |   |   | 22.5%  |   |   |   | 29.3% |   |
| Customer B |   |   | 15.3%  |   |   |   | 16.7% |   |
| Customer C |   |   | 12.3%  |   |   |   | 12.2% |   |
| Total      |   |   | 50.1%  |   |   |   | 58.2% |   |

|     |   | Years Ended June 30, |   |
|----------|--------|----------------------|--------|
|     |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|     |   |                 |   |   |   |   |   |   |   |
| U.S.     |   | $                    | 2,296  |   |   | $ | 5,192 |   |   | $ | (1,424 | ) |
| Non-U.S. |   |                 | (149   | ) |   |   | 60 |   |   |   | 48 |   |
|     |   | $                    | 2,147  |   |   | $ | 5,252 |   |   | $ | (1,376 | ) |

----

|                                          |   | Years Ended June 30, |   |
|-----------------------------------------------|--------|----------------------|--------|
|                                          |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                          |   |                 |   |   |   |   |   |   |   |
| Current:                                      |   |                 |   |   |   |   |   |   |   |
| U.S. Federal                                  |   | $                    | (1,396 | ) |   | $ | (424 | ) |   | $ | 887 |   |
| U.S. State                                    |   |                 | (61    | ) |   |   | (6 | ) |   |   | 120 |   |
| Non-U.S.                                      |   |                 | -      |   |   |   | (27 | ) |   |   | (2 | ) |
| Total current                                 |   | $                    | (1,457 | ) |   | $ | (457 | ) |   | $ | 1,005 |   |
|                                          |   |                 |   |   |   |   |   |   |   |   |   |   |
| Deferred:                                     |   |                 |   |   |   |   |   |   |   |   |   |   |
| U.S. Federal                                  |   |                 | 3,663  |   |   |   | (171 | ) |   |   | (512 | ) |
| U.S. State                                    |   |                 | 890    |   |   |   | (593 | ) |   |   | 89 |   |
| Change in deferred before valuation allowance |   |                 | 4,553  |   |   |   | (764 | ) |   |   | (423 | ) |
| Decrease (increase) in valuation allowance    |   |                 | -      |   |   |   | 764 |   |   |   | 423 |   |
| Total deferred                                |   |                 | 4,553  |   |   |   | - |   |   |   | - |   |
|                                          |   |                 |   |   |   |   |   |   |   |   |   |   |
| (Provision) benefit for income taxes          |   | $                    | 3,096  |   |   | $ | (457 | ) |   | $ | 1,005 |   |

|                                                        |   | Years Ended June 30, |   |
|-------------------------------------------------------------|--------|----------------------|--------|
|                                                        |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                                                        |   |                 |   |   |   |   |   |   |   |
| U.S. federal statutory income tax rate at 34.0 percent      |   | $                    | (730   | ) |   | $ | (1,785 | ) |   | $ | 468 |   |
| State income tax (provision) benefit, net of federal income |   |                 |   |   |   |   |   |   |   |   |   |   |
|   tax effect                                      |   |                 | 547    |   |   |   | (4 | ) |   |   | 79 |   |
| Repatriated foreign earnings                                |   |                 | (308   | ) |   |   | - |   |   |   | - |   |
| Foreign tax credit                                          |   |                 | 185    |   |   |   | - |   |   |   | - |   |
| Non-deductible SFAS No. 123R compensation expense           |   |                 | (106   | ) |   |   | (122 | ) |   |   | (143 | ) |
| Research and development credit                             |   |                 | 58     |   |   |   | 329 |   |   |   | 72 |   |
| Foreign earnings or losses taxed at different rates         |   |                 | (45    | ) |   |   | (11 | ) |   |   | 14 |   |
| Uncertain tax positions                                     |   |                 | (295   | ) |   |   | - |   |   |   | - |   |
| Non-deductible items and other                              |   |                 | 51     |   |   |   | 495 |   |   |   | 181 |   |
| Change in valuation allowance                               |   |                 | 3,739  |   |   |   | 641 |   |   |   | 334 |   |
|                                                        |   |                 |   |   |   |   |   |   |   |   |   |   |
| Tax (provision) benefit                                     |   | $                    | 3,096  |   |   | $ | (457 | ) |   | $ | 1,005 |   |

----

|                                                  |   | 2008    |   |   | 2007      |   |
|-------------------------------------------------------|--------|---------|--------|--------|-----------|--------|
|                                                  |   | Current |   |   | Long-term |   |   | Current |   |   | Long-term |   |
|                                                  |   |    |   |   |      |   |   |   |   |   |   |   |
| Deferred revenue                                      |   | $       | 1,462  |   |      | $      | - |   |   | $ | 1,146 |   |   | $ | - |   |
| Basis difference in intangible assets                 |   |    | -      |   |      |   | 599 |   |   |   | - |   |   |   | 627 |   |
| Inventory reserve                                     |   |    | 815    |   |      |   | - |   |   |   | 870 |   |   |   | - |   |
| Net operating loss carryforwards                      |   |    | -      |   |      |   | 10 |   |   |   | - |   |   |   | 123 |   |
| Accumulated research and development credits          |   |    | -      |   |      |   | 341 |   |   |   | - |   |   |   | 983 |   |
| Alternative minimum tax credits                       |   |    | -      |   |      |   | 287 |   |   |   | - |   |   |   | 409 |   |
| Accrued liabilities                                   |   |    | 848    |   |      |   | - |   |   |   | 139 |   |   |   | - |   |
| Deductible SFAS 123R compensation expense             |   |    | -      |   |      |   | 513 |   |   |   | - |   |   |   | 436 |   |
| Allowance for sales returns and doubtful accounts     |   |    | 34     |   |      |   | - |   |   |   | 21 |   |   |   | - |   |
| Difference in property and equipment basis            |   |    | -      |   |      |   | (324 | ) |   |   | - |   |   |   | (254 | ) |
| Other                                                 |   |    | 9      |   |      |   | 213 |   |   |   | 180 |   |   |   | - |   |
|                                                  |   |    |   |   |      |   |   |   |   |   |   |   |   |   |   |   |
|    Total net deferred income tax asset |   |    | 3,168  |   |      |   | 1,639 |   |   |   | 2,356 |   |   |   | 2,324 |   |
|                                                  |   |    |   |   |      |   |   |   |   |   |   |   |   |   |   |   |
|    Less valuation allowance            |   |    | -      |   |      |   | - |   |   |   | (2,356 | ) |   |   | (2,324 | ) |
|                                                  |   |    |   |   |      |   |   |   |   |   |   |   |   |   |   |   |
|    Net deferred income tax asset       |   | $       | 3,168  |   |      | $      | 1,639 |   |   | $ | - |   |   | $ | - |   |

|                                 |   | As of June 30, |   |
|--------------------------------------|--------|----------------|--------|
|                                 |   | 2008           |   |   | 2007 |   |
|                                 |   |           |   |   |   |   |
| Current deferred income tax assets   |   | $              | 3,168  |   |   | $ | - |   |
| Long-term deferred income tax assets |   |           | 1,639  |   |   |   | - |   |
| Net deferred income tax assets       |   | $              | 4,807  |   |   | $ | - |   |

----

| Unrecognized tax benefits at July 1, 2007  |   | $      | 862    |   |
|--------------------------------------------|--------|--------|--------|--------|
| Tax positions taken in a prior period      |   |   |   |   |
| Gross increases                            |   |   | 63     |   |
| Gross decreases                            |   |   | -      |   |
| Tax positions taken in the current period  |   |   |   |   |
| Gross increases                            |   |   | 419    |   |
| Gross decreases                            |   |   | -      |   |
| Settlements with taxing authorities        |   |   | -      |   |
| Lapse of applicable statute of limitations |   |   | (192   | )      |
| Unrecognized tax benefits at June 30, 2008 |   | $      | 1,152  |   |

----

|                |   | Years Ended June 30, |   |
|---------------------|--------|----------------------|--------|
|                |   | 2008                 |   |   | 2007 |   |   | 2006 |   |
|                |   |                 |   |   |   |   |   |   |   |
| United States       |   | $                    | 27,371 |   |   | $ | 28,350 |   |   | $ | 24,719 |   |
| All other countries |   |                 | 11,387 |   |   |   | 11,433 |   |   |   | 9,809 |   |
| Total               |   | $                    | 38,758 |   |   | $ | 39,783 |   |   | $ | 34,528 |   |

----

|                                                         |   | Year Ended June 30, 2008 |   |
|--------------------------------------------------------------|--------|--------------------------|--------|
|                                                         |   | As previously reported   |   |   | Adjustment |   |   | Restated |   |
|                                                         |   |                     |   |   |   |   |   |   |   |
| Revenue                                                      |   | $                        | 39,752 |   |   | $ | (994 | ) |   | $ | 38,758 |   |
| Cost of goods sold                                           |   |                     | 16,461 |   |   |   | (257 | ) |   |   | 16,204 |   |
| Gross profit                                                 |   |                     | 23,291 |   |   |   | (737 | ) |   |   | 22,554 |   |
| Operating income                                             |   |                     | 1,879  |   |   |   | (737 | ) |   |   | 1,142 |   |
| Income from continuing operations before income taxes        |   |                     | 2,884  |   |   |   | (737 | ) |   |   | 2,147 |   |
| Benefit for income taxes                                     |   |                     | 2,756  |   |   |   | 340 |   |   |   | 3,096 |   |
| Income from continuing operations                            |   |                     | 5,640  |   |   |   | (397 | ) |   |   | 5,243 |   |
| Net income                                                   |   |                     | 5,656  |   |   |   | (397 | ) |   |   | 5,259 |   |
| Comprehensive income                                         |   |                     | 4,962  |   |   |   | (397 | ) |   |   | 4,565 |   |
|                                                         |   |                     |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per common share from continuing operations   |   | $                        | 0.53   |   |   | $ | (0.04 | ) |   | $ | 0.49 |   |
| Diluted earnings per common share from continuing operations |   |                     | 0.52   |   |   |   | (0.04 | ) |   |   | 0.49 |   |
| Basic earnings per common share                              |   |                     | 0.53   |   |   |   | (0.04 | ) |   |   | 0.49 |   |
| Diluted earnings per common share                            |   |                     | 0.52   |   |   |   | (0.04 | ) |   |   | 0.49 |   |
|                                                         |   |                     |   |   |   |   |   |   |   |   |   |   |
| Cash flow statement                                          |   |                     |   |   |   |   |   |   |   |   |   |   |
| Change in inventories                                        |   |                     | (672   | ) |   |   | (257 | ) |   |   | (929 | ) |
| Change in deferred product revenue                           |   |                     | (325   | ) |   |   | 994 |   |   |   | 669 |   |
| Deferred taxes                                               |   |                     | (4,467 | ) |   |   | (340 | ) |   |   | (4,807 | ) |

|                                                  |   | Year Ended June 30, 2007 |   |
|-------------------------------------------------------|--------|--------------------------|--------|
|                                                  |   | As previously reported   |   |   | Adjustment |   |   | Restated |   |
|                                                  |   |                     |   |   |   |   |   |   |   |
| Revenue                                               |   | $                        | 39,861 |   |   | $ | (78 | ) |   | $ | 39,783 |   |
| Cost of goods sold                                    |   |                     | 17,723 |   |   |   | (86 | ) |   |   | 17,637 |   |
| Gross profit                                          |   |                     | 22,138 |   |   |   | 8 |   |   |   | 22,146 |   |
| Operating income                                      |   |                     | 3,721  |   |   |   | 8 |   |   |   | 3,729 |   |
| Income from continuing operations before income taxes |   |                     | 5,244  |   |   |   | 8 |   |   |   | 5,252 |   |
| Income (loss) from continuing operations              |   |                     | 4,787  |   |   |   | 8 |   |   |   | 4,795 |   |
| Net income                                            |   |                     | 5,209  |   |   |   | 8 |   |   |   | 5,217 |   |
| Comprehensive income                                  |   |                     | 5,209  |   |   |   | 8 |   |   |   | 5,217 |   |
|                                                  |   |                     |   |   |   |   |   |   |   |   |   |   |
| Cash flow statement                                   |   |                     |   |   |   |   |   |   |   |   |   |   |
| Change in inventories                                 |   |                     | (1,309 | ) |   |   | (85 | ) |   |   | (1,394 | ) |
| Change in deferred product revenue                    |   |                     | (999   | ) |   |   | 77 |   |   |   | (922 | ) |

----

|                                                     |   | Year Ended June 30, 2006 |   |
|----------------------------------------------------------|--------|--------------------------|--------|
|                                                     |   | As previously reported   |   |   | Adjustment |   |   | Restated |   |
|                                                     |   |                     |   |   |   |   |   |   |   |
| Revenue                                                  |   | $                        | 35,362 |   |   | $ | (834 | ) |   | $ | 34,528 |   |
| Cost of goods sold                                       |   |                     | 17,375 |   |   |   | (523 | ) |   |   | 16,852 |   |
| Gross profit                                             |   |                     | 17,987 |   |   |   | (311 | ) |   |   | 17,676 |   |
| Operating loss                                           |   |                     | (2,081 | ) |   |   | (311 | ) |   |   | (2,392 | ) |
| Loss from continuing operations before income taxes      |   |                     | (1,065 | ) |   |   | (311 | ) |   |   | (1,376 | ) |
| Loss from continuing operations                          |   |                     | (60    | ) |   |   | (311 | ) |   |   | (371 | ) |
| Net income                                               |   |                     | 2,096  |   |   |   | (311 | ) |   |   | 1,785 |   |
| Comprehensive income                                     |   |                     | 2,096  |   |   |   | (311 | ) |   |   | 1,785 |   |
|                                                     |   |                     |   |   |   |   |   |   |   |   |   |   |
| Basic loss per common share from continuing operations   |   | $                        | (0.01  | ) |   | $ | (0.03 | ) |   | $ | (0.03 | ) |
| Diluted loss per common share from continuing operations |   | $                        | -      |   |   | $ | (0.03 | ) |   | $ | (0.03 | ) |
| Basic earnings per common share                          |   | $                        | 0.18   |   |   | $ | (0.03 | ) |   | $ | 0.15 |   |
| Diluted earnings per common share                        |   | $                        | 0.17   |   |   | $ | (0.03 | ) |   | $ | 0.15 |   |
|                                                     |   |                     |   |   |   |   |   |   |   |   |   |   |
| Cash flow statement                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Change in inventories                                    |   |                     | (2,236 | ) |   |   | (523 | ) |   |   | (2,759 | ) |
| Change in deferred product revenue                       |   |                     | 816    |   |   |   | 834 |   |   |   | 1,650 |   |

|                     |   | June 30, 2008          |    |
|--------------------------|--------|------------------------|---------|
|                     |   | As previously reported |    |   | Adjustment |   |   | Restated |   |
| Inventories, net         |   | $                      | 7,799   |   |   | $ | 330 |   |   | $ | 8,129 |   |
| Deferred income taxes    |   |                   | 2,828   |   |   |   | 340 |   |   |   | 3,168 |   |
| Deferred product revenue |   |                   | 4,547   |   |   |   | 1,248 |   |   |   | 5,795 |   |
| Accumulated deficit      |   |                   | (11,794 | ) |   |   | (578 | ) |   |   | (12,372 | ) |

|                     |   | June 30, 2007          |    |
|--------------------------|--------|------------------------|---------|
|                     |   | As previously reported |    |   | Adjustment |   |   | Restated |   |
| Inventories, net         |   | $                      | 7,263   |   |   | $ | 72 |   |   | $ | 7,335 |   |
| Deferred product revenue |   |                   | 4,872   |   |   |   | 253 |   |   |   | 5,125 |   |
| Accumulated deficit      |   |                   | (17,155 | ) |   |   | (181 | ) |   |   | (17,336 | ) |

|                                    |   | As previously reported |    |   | Adjustment |   |   | Restated |   |
|-----------------------------------------|--------|------------------------|---------|--------|------------|--------|--------|----------|--------|
| Accumulated deficit as of June 30, 2006 |   | $                      | (22,364 | )      |       | $      | (189   | )        |   | $ | (22,553 | ) |
| Accumulated deficit as of June 30, 2005 |   |                   | (24,460 | )      |       |   | 122    |     |   |   | (24,338 | ) |
| Accumulated deficit as of June 30, 2004 |   |                   | (40,535 | )      |       |   | 342    |     |   |   | (40,193 | ) |