##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number: 1-34033
 DIGI INTERNATIONAL INC.
  Delaware
    
    41-1532464(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 11001 Bren Road EastMinnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 (952) 912-3444
 (Registrants telephone number, including area code)
 þ o
 Yes
o  No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



PagePART I. FINANCIAL INFORMATIONITEM 1. Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Statements of Operations for the three
months ended December 31, 2009 and 2008
    
    
    3Condensed Consolidated Balance Sheets as of
December 31, 2009 and September 30, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for
the three months ended December 31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial
Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    15Forward-looking Statements
    
    
    15ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22ITEM 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    24ITEM 1A. Risk Factors
    
    
    24ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24ITEM 3. Defaults Upon Senior Securities
    
    
    24ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    24ITEM 5. Other Information
    
    
    24ITEM 6. Exhibits
    
    
    25Exhibit 31(a)Exhibit 31(b)Exhibit 32
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 DIGI INTERNATIONAL INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three months ended December 31,2009
    
    
    2008(in thousands, except per common share data)Net sales
    
    $
    42,968
    
    
    $
    41,361Cost of sales (exclusive of amortization of purchased and core
technology shown separately below)
    
    
    20,163
    
    
    
    19,069Amortization of purchased and core technology
    
    
    1,092
    
    
    
    1,044Gross profit
    
    
    21,713
    
    
    
    21,248Operating expenses:Sales and marketing
    
    
    9,240
    
    
    
    9,625Research and development
    
    
    6,486
    
    
    
    6,974General and administrative
    
    
    4,158
    
    
    
    3,883Total operating expenses
    
    
    19,884
    
    
    
    20,482Operating income
    
    
    1,829
    
    
    
    766Total other income, net
    
    
    3
    
    
    
    259Income before income taxes
    
    
    1,832
    
    
    
    1,025Income tax provision
    
    
    633
    
    
    
    9Net income
    
    $
    1,199
    
    
    $
    1,016Net income per common share:Basic
    
    $
    0.05
    
    
    $
    0.04Diluted
    
    $
    0.05
    
    
    $
    0.04Weighted average common shares, basic
    
    
    24,701
    
    
    
    25,381Weighted average common shares, diluted
    
    
    24,979
    
    
    
    25,679
   3




---



##### Table of Contents



DIGI INTERNATIONAL INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 December 31,
    
    
    September 30,2009
    
    
    2009(in thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,453
    
    
    $
    48,434Marketable securities
    
    
    33,124
    
    
    
    22,311Accounts receivable, net
    
    
    21,846
    
    
    
    19,032Inventories
    
    
    25,245
    
    
    
    26,619Deferred tax assets
    
    
    2,392
    
    
    
    2,415Other
    
    
    3,499
    
    
    
    3,844Total current assets
    
    
    129,559
    
    
    
    122,655Marketable securities, long-term
    
    
    1,951
    
    
    
    5,063Property, equipment and improvements, net
    
    
    16,851
    
    
    
    16,678Identifiable intangible assets, net
    
    
    25,004
    
    
    
    26,877Goodwill
    
    
    86,500
    
    
    
    86,558Other
    
    
    1,059
    
    
    
    1,117Total assets
    
    $
    260,924
    
    
    $
    258,948LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,292
    
    
    $
    5,567Accrued compensation
    
    
    3,928
    
    
    
    3,275Accrued warranty
    
    
    952
    
    
    
    970Deferred payment on acquisition
    
    
    2,993
    
    
    
    2,966Restructuring
    
    
    636
    
    
    
    721Other
    
    
    3,114
    
    
    
    3,035Total current liabilities
    
    
    17,915
    
    
    
    16,534Capital lease obligations, net of current portionIncome taxes payable
    
    
    4,891
    
    
    
    4,893Deferred tax liabilities
    
    
    4,071
    
    
    
    4,331Deferred payment on acquisition
    
    
    2,837
    
    
    
    2,812Other noncurrent liabilities
    
    
    731
    
    
    
    792Total liabilities
    
    
    30,445
    
    
    
    29,362Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 2,000,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 60,000,000 shares authorized;
28,409,198 shares issued
    
    
    284
    
    
    
    284Additional paid-in capital
    
    
    181,650
    
    
    
    181,282Retained earnings
    
    
    83,907
    
    
    
    82,708Accumulated other comprehensive loss
    
    
    (7,201
    )
    
    
    (6,527
    )Treasury stock, at cost, 3,708,302 shares
    
    
    (28,161
    )
    
    
    (28,161
    )Total stockholders equity
    
    
    230,479
    
    
    
    229,586Total liabilities and stockholders equity
    
    $
    260,924
    
    
    $
    258,948
   4




---



##### Table of Contents



DIGI INTERNATIONAL INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three months ended December 31,2009
    
    
    2008(in thousands)Operating activities:Net income
    
    $
    1,199
    
    
    $
    1,016Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation of property, equipment and improvements
    
    
    665
    
    
    
    590Amortization of identifiable intangible assets and other assets
    
    
    1,944
    
    
    
    1,854Stock-based compensation
    
    
    998
    
    
    
    968Deferred income tax benefit
    
    
    (249
    )
    
    
    (836
    )Other
    
    
    (197
    )
    
    
    110Changes in operating assets and liabilities
    
    
    (445
    )
    
    
    (5,688
    )Net cash provided by (used in) operating activities
    
    
    3,915
    
    
    
    (1,986
    )Investing activities:Purchase of marketable securities
    
    
    (8,161
    )
    
    
    (4,173
    )Proceeds from maturities of marketable securities
    
    
    519
    
    
    
    16,064Purchase of property, equipment, improvements and certain other intangible assets, net of proceeds from sale
    
    
    (904
    )
    
    
    (843
    )Net cash (used in) provided by investing activities
    
    
    (8,546
    )
    
    
    11,048Financing activities:Payments on capital lease obligations
    
    
    (6
    )
    
    
    (69
    )Proceeds from stock option plan transactions and other
    
    
    
    
    
    
    57Proceeds from employee stock purchase plan transactions
    
    
    
    
    
    
    309Net cash (used in) provided by financing activities
    
    
    (6
    )
    
    
    297Effect of exchange rate changes on cash and cash equivalents
    
    
    (344
    )
    
    
    (903
    )Net (decrease) increase in cash and cash equivalents
    
    
    (4,981
    )
    
    
    8,456Cash and cash equivalents, beginning of period
    
    
    48,434
    
    
    
    14,176Cash and cash equivalents, end of period
    
    $
    43,453
    
    
    $
    22,632
   5




---



##### Table of Contents



DIGI INTERNATIONAL INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1.
    
    BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
    Recently Issued Accounting Pronouncements
    6




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2.
    
    COMPREHENSIVE INCOME (LOSS)
  Three months ended December 31,2009
    
    
    2008Net income
    
    $
    1,199
    
    
    $
    1,016Other comprehensive income (loss):Change in foreign currency translation adjustment
    
    
    (710
    )
    
    
    (7,901
    )Change in unrealized gain (loss) on investments, net of income
tax (provision) benefit of ($23) and $5, respectively
    
    
    36
    
    
    
    (8
    )Comprehensive income (loss)
    
    $
    525
    
    
    $
    (6,893
    )
 3.
    
    NET INCOME PER COMMON SHARE
   Three months ended December 31,2009
    
    
    2008Numerator:Net income
    
    $
    1,199
    
    
    $
    1,016Denominator:Denominator for basic net income per common
share  weighted average shares outstanding
    
    
    24,701
    
    
    
    25,381Effect of dilutive securities:Employee stock options and employee stock purchase plan
    
    
    278
    
    
    
    298Denominator for diluted net income per common
share  adjusted weighted average shares
    
    
    24,979
    
    
    
    25,679Net income per common share, basic
    
    $
    0.05
    
    
    $
    0.04Net income per common share, diluted
    
    $
    0.05
    
    
    $
    0.04
   7




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 4.
    
    ACQUISITION
 MobiApps Holdings Private Limited
  5.
    
    SELECTED BALANCE SHEET DATA
  December 31, 2009
    
    
    September 30, 2009Accounts receivable, net:Accounts receivable
    
    $
    22,388
    
    
    $
    19,656Less allowance for doubtful accounts
    
    
    542
    
    
    
    624$
    21,846
    
    
    $
    19,032Inventories:Raw materials
    
    $
    20,720
    
    
    $
    21,359Work in process
    
    
    301
    
    
    
    452Finished goods
    
    
    4,224
    
    
    
    4,808$
    25,245
    
    
    $
    26,619Other accrued expenses:Accrued professional fees
    
    $
    852
    
    
    $
    696Deferred gain on building sale  short-term
    
    
    271
    
    
    
    276Other accrued expenses
    
    
    1,991
    
    
    
    2,063$
    3,114
    
    
    $
    3,035
  6.
    
    MARKETABLE SECURITIES
   8




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 6.
    
    MARKETABLE SECURITIES (CONTINUED)
   At
December 31, 2009 (in thousands)
 Amortized
    
    
    Unrealized
    
    
    UnrealizedCost (1)
    
    
    Gains
    
    
    Losses (3)
    
    
    Fair Value (1)Current marketable securities:Corporate bonds (2)
    
    $
    15,366
    
    
    $
    24
    
    
    $
    (4
    )
    
    $
    15,386Certificates of deposit
    
    
    9,788
    
    
    
    26
    
    
    
    
    
    
    
    9,814Government municipal bonds
    
    
    7,917
    
    
    
    7
    
    
    
    
    
    
    
    7,924Current marketable securities
    
    
    33,071
    
    
    
    57
    
    
    
    (4
    )
    
    
    33,124Non-current marketable securities:Corporate bonds
    
    
    1,959
    
    
    
    
    
    
    
    (8
    )
    
    
    1,951Total marketable securities
    
    $
    35,030
    
    
    $
    57
    
    
    $
    (12
    )
    
    $
    35,075
 (1)
    
    Included in amortized cost and fair value is purchased and accrued interest of $325,088.(2)
    
    The Lehman Brothers Bond is included in amortized cost at a fair value of $134,100.(3)
    
    The aggregate related fair value of securities with unrealized losses as of December 31, 2009 was $8,268,730. At
September 30, 2009 (in thousands)
 Amortized
    
    
    Unrealized
    
    
    UnrealizedCost (1)
    
    
    Gains
    
    
    Losses (3)
    
    
    Fair Value (1)Current marketable securities:Corporate bonds (2)
    
    $
    4,236
    
    
    $
    18
    
    
    $
    
    
    
    $
    4,254Certificates of deposit
    
    
    10,022
    
    
    
    4
    
    
    
    (1
    )
    
    
    10,025Government municipal bonds
    
    
    8,023
    
    
    
    11
    
    
    
    (2
    )
    
    
    8,032Current marketable securities
    
    
    22,281
    
    
    
    33
    
    
    
    (3
    )
    
    
    22,311Non-current marketable securities:Corporate bonds
    
    
    5,107
    
    
    
    
    
    
    
    (44
    )
    
    
    5,063Total marketable securities
    
    $
    27,388
    
    
    $
    33
    
    
    $
    (47
    )
    
    $
    27,374
 (1)
    
    Included in amortized cost and fair value is purchased and accrued interest of $263,883.(2)
    
    The Lehman Brothers Bond is included in amortized cost at a fair value of $134,100.(3)
    
    The aggregate related fair value of securities with unrealized losses as of September 30, 2009 was $9,009,428.  9




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7.
    
    FAIR VALUE MEASUREMENTS
   
    
    Level 1  Inputs are quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, and inputs (other than quoted prices) that are observable for the asset
or liability, either directly or indirectly.
    
    Level 3  Inputs are unobservable for the asset or liability. See the section below
titled Level 3 Valuation Techniquesfor further discussion of how we determine fair
value for investments classified as Level 3.
 Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
 (Level 1).
  Fair Value Measurements at December 31, 2009 Using:Total carrying
    
    
    Quoted price in
    
    
    Significant other
    
    
    Significantvalue at
    
    
    active markets
    
    
    observable inputs
    
    
    unobservable inputsDecember 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:Money market
    
    $
    27,232
    
    
    $
    27,232
    
    
    $
    
    
    
    $
    Available-for-sale
marketable securities:Corporate bonds
    
    
    17,337
    
    
    
    17,203
    
    
    
    
    
    
    
    134Certificates of deposit
    
    
    9,814
    
    
    
    9,814
    
    
    
    
    
    
    
    Government municipal bonds
    
    
    7,924
    
    
    
    7,924
    
    
    
    
    
    
    
    Total cash equivalents
and marketable securities measured at
fair value
    
    $
    62,307
    
    
    $
    62,173
    
    
    $
    
    
    
    $
    134
   10




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7.
    
    FAIR VALUE MEASUREMENTS (CONTINUED)
 Level 3 Valuation Techniques
   8.
    
    GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
  December 31, 2009
    
    
    September 30, 2009Gross
    
    
    
    
    
    
    
    
    
    
    Grosscarrying
    
    
    Accum.
    
    
    
    
    
    
    carrying
    
    
    Accum.amount
    
    
    amort.
    
    
    Net
    
    
    amount
    
    
    amort.
    
    
    NetPurchased and core technology
    
    $
    46,571
    
    
    $
    (35,961
    )
    
    $
    10,610
    
    
    $
    46,583
    
    
    $
    (34,893
    )
    
    $
    11,690License agreements
    
    
    2,840
    
    
    
    (2,483
    )
    
    
    357
    
    
    
    2,840
    
    
    
    (2,464
    )
    
    
    376Patents and trademarks
    
    
    9,345
    
    
    
    (5,793
    )
    
    
    3,552
    
    
    
    9,292
    
    
    
    (5,536
    )
    
    
    3,756Customer maintenance contracts
    
    
    700
    
    
    
    (551
    )
    
    
    149
    
    
    
    700
    
    
    
    (534
    )
    
    
    166Customer relationships
    
    
    17,582
    
    
    
    (7,775
    )
    
    
    9,807
    
    
    
    17,607
    
    
    
    (7,334
    )
    
    
    10,273Non-compete agreements
    
    
    1,041
    
    
    
    (512
    )
    
    
    529
    
    
    
    1,041
    
    
    
    (425
    )
    
    
    616Total
    
    $
    78,079
    
    
    $
    (53,075
    )
    
    $
    25,004
    
    
    $
    78,063
    
    
    $
    (51,186
    )
    
    $
    26,877
   2010 (nine months)
    
    $
    5,6972011
    
    
    6,5532012
    
    
    4,6112013
    
    
    3,0872014
    
    
    2,3532015
    
    
    1,272
  11




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 8.
    
    GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (CONTINUED)
  Three months ended December 31,2009
    
    
    2008Beginning balance, October 1
    
    $
    86,558
    
    
    $
    86,578Foreign currency translation adjustment
    
    
    (58
    )
    
    
    (2,980
    )Ending balance, December 31
    
    $
    86,500
    
    
    $
    83,598
 9.
    
    INCOME TAXES
    Uncertain tax positions as of September 30, 2009
    
    $
    4,146Expiration of the statute of limitations
    
    
    (25
    )Uncertain tax positions as of December 31, 2009
    
    $
    4,121
      12




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 10.
    
    FINANCIAL GUARANTEES
  Three months ended December 31,Balance at
    
    
    Warranties
    
    
    Settlements
    
    
    Balance atOctober 1
    
    
    expensed
    
    
    made
    
    
    December 312009
    
    $
    970
    
    
    $
    196
    
    
    $
    (214
    )
    
    $
    9522008
    
    $
    1,214
    
    
    $
    221
    
    
    $
    (205
    )
    
    $
    1,230
  11.
    
    CONTINGENCIES
 Contingent obligations
 In re Initial Public Offering Securities
Litigation
   13




---



##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 12.
    
    RESTRUCTURING
    EmployeeTerminationCosts
    
    
    Other
    
    
    TotalBalance September 30, 2009
    
    $
    620
    
    
    $
    101
    
    
    $
    721Restructuring charge
    
    
    75
    
    
    
    
    
    
    
    75Payments/write-downs
    
    
    (150
    )
    
    
    (10
    )
    
    
    (160
    )Balance December 31, 2009
    
    $
    545
    
    
    $
    91
    
    
    $
    636
   14




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
       15




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
 OVERVIEW
       16




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
 CONSOLIDATED RESULTS OF OPERATIONS
  Three months ended December 31,
    
    
    % increase2009
    
    
    2008
    
    
    (decrease)Net sales
    
    $
    42,968
    
    
    
    100.0
    %
    
    $
    41,361
    
    
    
    100.0
    %
    
    
    3.9
    %Cost of sales (exclusive of amortization of purchased
and core technology shown separately below)
    
    
    20,163
    
    
    
    46.9
    
    
    
    19,069
    
    
    
    46.1
    
    
    
    5.7Amortization of purchased and core technology
    
    
    1,092
    
    
    
    2.6
    
    
    
    1,044
    
    
    
    2.5
    
    
    
    4.6Gross profit
    
    
    21,713
    
    
    
    50.5
    
    
    
    21,248
    
    
    
    51.4
    
    
    
    2.2Operating expenses:Sales and marketing
    
    
    9,240
    
    
    
    21.5
    
    
    
    9,625
    
    
    
    23.3
    
    
    
    (4.0
    )Research and development
    
    
    6,486
    
    
    
    15.1
    
    
    
    6,974
    
    
    
    16.8
    
    
    
    (7.0
    )General and administrative
    
    
    4,158
    
    
    
    9.6
    
    
    
    3,883
    
    
    
    9.4
    
    
    
    7.1Total operating expenses
    
    
    19,884
    
    
    
    46.2
    
    
    
    20,482
    
    
    
    49.5
    
    
    
    (2.9
    )Operating income
    
    
    1,829
    
    
    
    4.3
    
    
    
    766
    
    
    
    1.9
    
    
    
    138.8Other income, net
    
    
    3
    
    
    
    0.0
    
    
    
    259
    
    
    
    0.6
    
    
    
    (98.8
    )Income before income taxes
    
    
    1,832
    
    
    
    4.3
    
    
    
    1,025
    
    
    
    2.5
    
    
    
    78.7Income tax provision
    
    
    633
    
    
    
    1.5
    
    
    
    9
    
    
    
    0.0
    
    
    
    N/MNet income
    
    $
    1,199
    
    
    
    2.8
    %
    
    $
    1,016
    
    
    
    2.5
    %
    
    
    18.0
    %
    Three months ended December 31,
    
    
    $ increase
    
    
    % increase($ in thousands)
    
    2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)Non-embedded
    
    $
    24,897
    
    
    
    57.9
    %
    
    $
    23,340
    
    
    
    56.4
    %
    
    $
    1,557
    
    
    
    6.7
    %Embedded
    
    
    18,071
    
    
    
    42.1
    
    
    
    18,021
    
    
    
    43.6
    
    
    
    50
    
    
    
    0.3Total net sales
    
    $
    42,968
    
    
    
    100.0
    %
    
    $
    41,361
    
    
    
    100.0
    %
    
    $
    1,607
    
    
    
    3.9
    %
 Non-embedded
   17




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
  Embedded
    Three months ended December 31,
    
    
    $ increase
    
    
    % increase($ in thousands)
    
    2009
    
    
    2008
    
    
    (decrease)
    
    
    (decrease)North America (1)
    
    $
    25,525
    
    
    $
    23,145
    
    
    $
    2,380
    
    
    
    10.3
    %EMEA
    
    
    11,021
    
    
    
    13,328
    
    
    
    (2,307
    )
    
    
    (17.3
    )Asia countries (2)
    
    
    5,335
    
    
    
    3,834
    
    
    
    1,501
    
    
    
    39.1Latin America
    
    
    1,087
    
    
    
    1,054
    
    
    
    33
    
    
    
    3.1Total net sales
    
    $
    42,968
    
    
    $
    41,361
    
    
    $
    1,607
    
    
    
    3.9
    %
 (1)
    
    Includes MobiApps net sales of $101 for the three months ended December 31, 2009.(2)
    
    Includes MobiApps net sales of $481 for the three months ended December 31, 2009.      18




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
   Three months ended December 31,
    
    
    $ increase($ in thousands)
    
    2009
    
    
    2008
    
    
    (decrease)Operating expenses:Sales and marketing
    
    $
    9,240
    
    
    
    21.5
    %
    
    $
    9,625
    
    
    
    23.3
    %
    
    $
    (385
    )Research and development
    
    
    6,486
    
    
    
    15.1
    
    
    
    6,974
    
    
    
    16.8
    
    
    
    (488
    )General and administrative
    
    
    4,158
    
    
    
    9.6
    
    
    
    3,883
    
    
    
    9.4
    
    
    
    275Total operating expenses
    
    $
    19,884
    
    
    
    46.2
    %
    
    $
    20,482
    
    
    
    49.5
    %
    
    $
    (598
    )
         19




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
         20




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
     21




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       Three months ended December 31,
    
    
    % increase2009
    
    
    2008
    
    
    (decrease)Euro
    
    
    1.4780
    
    
    
    1.3201
    
    
    
    12.0
    %British Pound
    
    
    1.6337
    
    
    
    1.5788
    
    
    
    3.5Yen
    
    
    0.0112
    
    
    
    0.0104
    
    
    
    7.1
      22




---



##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
      23




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
   24




---



##### Table of Contents



ITEM 6.
    
    EXHIBITS
 Exhibit No.
    
    Description3
    (a)
    
    Restated Certificate of Incorporation of the Company, as amended (1)3
    (b)
    
    Amended and Restated By-Laws of the Company (2)4
    (a)
    
    Share Rights Agreement, dated as of April 22, 2008, between the Company and Wells
Fargo Bank, N.A., as Rights Agent (3)4
    (b)
    
    Form of Amended and Restated Certificate of Powers, Designations, Preferences and
Rights of Series A Junior Participating Preferred Shares (4)10
    (a)
    
    Digi International Inc. 2000 Omnibus Stock Plan, as amended and restated as of
December 4, 2009* (5)10
    (b)
    
    Digi International Inc. Employee Stock Purchase Plan, as amended and restated
as of December 4, 2009* (6)10
    (c)
    
    Form of Notice of Grant of Stock Options and Option Agreement (amended form for
grants under Digi International Inc. 2000 Omnibus Stock Plan on or after January 26,
2010)*(7)31
    (a)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31
    (b)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    
    Section 1350 Certification
 
 *
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-Q.(1)
    
    Incorporated by reference to Exhibit 3(a) to the Companys Form 10-K for the year ended
September 30, 1993 (File No. 0-17972)(2)
    
    Incorporated by reference to Exhibit 3(b) to the Companys Form 10-Q for the quarter ended
June 30, 2008 (File No. 1-34033)(3)
    
    Incorporated by reference to Exhibit 4(a) to the Companys Registration Statement on Form 8-A
filed on April 25, 2008 (File No. 1-34033)(4)
    
    Incorporated by reference to Exhibit 4(b) to the Companys Registration Statement on Form 8-A
filed on April 25, 2008 (File No. 1-34033)(5)
    
    Incorporated by reference to Exhibit 10(a) to the Companys Form 8-K filed on January 29,
2010 (File No. 1-34033)(6)
    
    Incorporated by reference to Exhibit 10(b) to the Companys Form 8-K filed on January 29,
2010 (File No. 1-34033)(7)
    
    Incorporated by reference to Exhibit 10(c) to the Companys Form 8-K filed on January 29,
2010 (File No. 1-34033)  25




---



##### Table of Contents



DIGI INTERNATIONAL INC.Date:  February 5, 2010
    By:
    /s/ Subramanian KrishnanSubramanian KrishnanSenior Vice President, Chief Financial Officer
and Treasurer (Principal Financial and
Accounting Officer)  26




---



##### Table of Contents



Exhibit Number
    
    Document Description
    
    Form of Filing3
    (a)
    
    Restated Certificate of Incorporation of
the Company, as Amended (incorporated by
reference to the corresponding exhibit
number to the Companys Form 10-K for the
year ended September 30, 1993 (File No.
0-17972))
    
    Incorporated by Reference3
    (b)
    
    Amended and Restated By-Laws of the Company
    
    Incorporated by
Reference4
    (a)
    
    Share Rights Agreement, dated as of April
22, 2008, between the Company and Wells
Fargo Bank, N.A., as Rights Agent
    
    Incorporated by
Reference4
    (b)
    
    Form of Amended and Restated Certificate
of Powers, Designations, Preferences and
Rights of Series A Junior Participating
Preferred Shares
    
    Incorporated by
Reference10
    (a)
    
    Digi International Inc. 2000 Omnibus Stock
Plan, as amended and restated as of
December 4, 2009
    
    Incorporated by
Reference10
    (b)
    
    Digi International Inc. Employee Stock
Purchase Plan, as amended and restated as
of December 4, 2009
    
    Incorporated by
Reference10
    (c)
    
    Form of Notice of Grant of Stock Options
and Option Agreement (amended form for
grants under Digi International Inc. 2000
Omnibus Stock Plan on or after January 26,
2010)
    
    Incorporated by
Reference31
    (a)
    
    Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer
    
    Filed Electronically31
    (b)
    
    Rule 13a-14(a)/15d-14(a) Certification of
Chief Financial Officer
    
    Filed Electronically32
    
    
    Section 1350 Certification
    
    Filed Electronically
  27