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| Delaware                             | 68-0370244                                |
|--------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of | (I.R.S.      Employer Identification No.) |
| incorporation      or organization)  |                                      |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Page    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | PART      I. FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |    |
| Item      1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Condensed      Consolidated Financial Statements (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Condensed      Consolidated Balance Sheets as of December 31, 2007 and March 31,      2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 3       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Condensed      Consolidated Statements of Operations for the three months and nine months      ended December 31, 2007 and December 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  3 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Condensed      Consolidated Statements of Cash Flows as of December 31, 2007 and December      31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 4       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Notes      to Condensed Consolidated Financial      Statements                                                                                                                                             | 5       |
| Item      2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 12      |
| Item      3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Quantitative      and Qualitative Disclosures About Market      Risk                                                                                                                                       | 14      |
| Item      4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Controls      and      Procedures                                                                                                                                                                          | 14      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  PART      II. OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |    |
| Item      1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Legal      Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 15      |
| Item      1A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Risk      Factors                                                                                                                                                                                     | 15      |
| Item      6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Exhibits                                                                                                                                                                                              | 18      |
| Signatures                                                                                                                                                       |  19                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |

----

|                                                                                                                                                                                              |   | December      31, |     |   | March      31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------|--------|----------------|--------|
|                                                                                                                                                                                              |   | 2007              |     |   | 2007           |   |
| ASSETS                                                                                                                                                                                            |   |
| Current      assets:                                                                                                                                                                              |   |              |     |   |           |   |
| Cash      and cash equivalents                                                                                                                                                                    |   | $                 | 19,796   |   |           | $      | 25,776 |   |
| Accounts      receivable, net of allowances for sales returns and doubtful accounts of      $157 and $413 at December 31, 2007 and March 31, 2007,      respectively                              |   |              | 10,202   |   |           |   | 6,634 |   |
| Inventories,      net                                                                                                                                                                             |   |              | 11,071   |   |           |   | 5,567 |   |
| Prepaid      expenses and other current assets                                                                                                                                                    |   |              | 982      |   |           |   | 991 |   |
| Total      current assets                                                                                                                                                                         |   |              | 42,051   |   |           |   | 38,968 |   |
| Property      and equipment, net                                                                                                                                                                  |   |              | 1,216    |   |           |   | 1,351 |   |
| Intangible      assets, net                                                                                                                                                                       |   |              | 964      |   |           |   | 1,161 |   |
| Other      assets                                                                                                                                                                                 |   |              | 104      |   |           |   | 176 |   |
| Total      assets                                                                                                                                                                                 |   | $                 | 44,335   |   |           | $      | 41,656 |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                   |   |
| Current      liabilities:                                                                                                                                                                         |   |              |     |   |           |   |   |   |
| Notes      payable and bank lines of credit                                                                                                                                                       |   | $                 | —  |   |           | $      | 10 |   |
| Accounts      payable                                                                                                                                                                             |   |              | 1,909    |   |           |   | 1,974 |   |
| Accrued      product warranty                                                                                                                                                                     |   |              | 1,953    |   |           |   | 1,101 |   |
| Deferred      revenue                                                                                                                                                                             |   |              | 1,102    |   |           |   | 1,064 |   |
| Litigation      suspense                                                                                                                                                                          |   |              | 18,505   |   |           |   | 19,500 |   |
| Accrued      expenses and other current liabilities                                                                                                                                               |   |              | 3,453    |   |           |   | 3,590 |   |
| Total      current liabilities                                                                                                                                                                    |   |              | 26,922   |   |           |   | 27,239 |   |
| Total      liabilities                                                                                                                                                                            |   |              | 26,922   |   |           |   | 27,239 |   |
| Commitments      and contingencies (Note 7)                                                                                                                                                       |   |              |     |   |           |   |   |   |
| Stockholders’      equity:                                                                                                                                                                  |   |              |     |   |           |   |   |   |
| Preferred      stock; $0.01 par value; 5,000,000 shares authorized; none issued and      outstanding                                                                                              |   |              | —  |   |           |   | — |   |
| Common      stock; $0.01 par value; 50,000,000 shares authorized; 7,202,288 and      7,106,867 shares issued and      outstanding at December 31, 2007 and March 31, 2007,      respectively |   |              | 72       |   |           |   | 71 |   |
| Additional      paid-in capital                                                                                                                                                                   |   |              | 123,285  |   |           |   | 122,473 |   |
| Accumulated      other comprehensive income (loss)                                                                                                                                                |   |              | (465     | )      |           |   | 240 |   |
| Accumulated      deficit                                                                                                                                                                          |   |              | (105,479 | )      |           |   | (108,367 | ) |
| Total      stockholders’ equity                                                                                                                                                             |   |              | 17,413   |   |           |   | 14,417 |   |
| Total      liabilities and stockholders’ equity                                                                                                                                             |   | $                 | 44,335   |   |           | $      | 41,656 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Three      Months EndedDecember 31, |   |   | Nine      Months EndedDecember 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 2007                                |   |   | 2006                               |   |   | 2007 |   |   | 2006 |   |
| Revenue                                                                                                                                   |   | $                                   | 10,145 |   |                               | $      | 4,377 |   |   | $ | 25,543 |   |   | $ | 16,066 |   |
| Cost      of      revenue                                                                                                                 |   |                                | 5,725  |   |                               |   | 5,703 |   |   |   | 15,262 |   |   |   | 12,494 |   |
| Gross      profit                                                                                                                                                  |   |                                | 4,420  |   |                               |   | (1,326 | ) |   |   | 10,281 |   |   |   | 3,572 |   |
| Operating      expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development      expenses                                                                                                                        |   |                                | 810    |   |                               |   | 1,077 |   |   |   | 2,645 |   |   |   | 3,139 |   |
| Sales      and marketing      expenses                                                                                                                             |   |                                | 923    |   |                               |   | 949 |   |   |   | 3,208 |   |   |   | 2,957 |   |
| General      and administrative      expenses                                                                                                                      |   |                                | 938    |   |                               |   | 3,063 |   |   |   | 3,589 |   |   |   | 8,850 |   |
| Total      operating      expenses                                                                                                        |   |                                | 2,671  |   |                               |   | 5,089 |   |   |   | 9,442 |   |   |   | 14,946 |   |
| Operating      income      (loss)                                                                                                                                  |   |                                | 1,749  |   |                               |   | (6,415 | ) |   |   | 839 |   |   |   | (11,374 | ) |
| Other      income (expense),      net                                                                                                                              |   |                                | 1,085  |   |                               |   | 290 |   |   |   | 2,049 |   |   |   | 166 |   |
| Net      income      (loss)                                                                                                               |   | $                                   | 2,834  |   |                               | $      | (6,125 | ) |   | $ | 2,888 |   |   | $ | (11,208 | ) |
| Net      income (loss) per share,      basic                                                                                              |   | $                                   | 0.40   |   |                               | $      | (0.86 | ) |   | $ | 0.41 |   |   | $ | (1.59 | ) |
| Net      income (loss) per share,      diluted                                                                                            |   | $                                   | 0.39   |   |                               | $      | (0.86 | ) |   | $ | 0.40 |   |   | $ | (1.59 | ) |
| Shares      used in per share computation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                | 7,148  |   |                               |   | 7,082 |   |   |   | 7,120 |   |   |   | 7,044 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                | 7,281  |   |                               |   | 7,082 |   |   |   | 7,241 |   |   |   | 7,044 |   |

----

|                                                                                                         |   | Nine Months      EndedDecember 31, |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------|
|                                                                                                         |   | 2007                               |   |   | 2006 |
| Cash      flows from operating activities:                                                                   |   |                               |   |   |   |
| Net      income (loss)                                                                                       |   | $                                  | 2,888 |   |   | $ | (11,208 | ) |
| Adjustments      to reconcile net income (loss) to net cash provided by (used in) operating      activities: |   |                               |   |   |   |   |   |   |
| Depreciation      and amortization                                                                           |   |                               | 566 |   |   |   | 639 |   |
| Stock      compensation expense                                                                              |   |                               | 757 |   |   |   | 1,417 |   |
| Stock      issued under stock purchase plan                                                                  |   |                               | 22 |   |   |   | — |   |
| Provision      for doubtful accounts and sales returns allowances                                            |   |                               | (255 | ) |   |   | 259 |   |
| Loss      on disposal of property and equipment                                                              |   |                               | 144 |   |   |   | 657 |   |
| Fair      value of warrants and options issued for services rendered                                         |   |                               | 33 |   |   |   | 61 |   |
| Changes      in operating assets and liabilities, net of acquisitions:                                       |   |                               |   |   |   |   |   |   |
| Accounts      receivable                                                                                     |   |                               | (3,297 | ) |   |   | 2,619 |   |
| Inventories      net                                                                                         |   |                               | (5,490 | ) |   |   | 1,621 |   |
| Prepaid      expenses and other assets                                                                       |   |                               | 77 |   |   |   | 56 |   |
| Accounts      payable                                                                                        |   |                               | (60 | ) |   |   | (193 | ) |
| Accrued      expenses and other current liabilities                                                          |   |                               | (144 | ) |   |   | (82 | ) |
| Accrued      product warranty                                                                                |   |                               | 896 |   |   |   | 340 |   |
| Litigation      suspense                                                                                     |   |                               | (995 | ) |   |   | 19,500 |   |
| Deferred      revenue                                                                                        |   |                               | 38 |   |   |   | 317 |   |
| Net      cash used in operating activities                                                                   |   |                               | (4,820 | ) |   |   | 16,003 |   |
| Cash      flows from investing activities:                                                                   |   |                               |   |   |   |   |   |   |
| Purchases      of property and equipment                                                                     |   |                               | (378 | ) |   |   | (244 | ) |
| Net      cash used in investing activities                                                                   |   |                               | (378 | ) |   |   | (244 | ) |
| Cash      flows from financing activities:                                                                   |   |                               |   |   |   |   |   |   |
| Net      proceeds from issuance of common stock                                                              |   |                               | — |   |   |   | — |   |
| (Repayments)      borrowings under notes payable and bank lines of credit                                    |   |                               | (10 | ) |   |   | 12 |   |
| Payments      on capital lease financing                                                                     |   |                               | — |   |   |   | (2 | ) |
| Net      cash (used in) provided by financing activities                                                     |   |                               | (10 | ) |   |   | 10 |   |
| Effect      of exchange rates on cash and cash equivalents                                                   |   |                               | (772 | ) |   |   | (54 | ) |
| Net      decrease  in cash and cash equivalents((                                                  |   |                               | (5,980 | ) |   |   | 15,715 |   |
| Cash      and cash equivalents at beginning of period                                                        |   |                               | 25,776 |   |   |   | 13,787 |   |
| Cash      and cash equivalents at end of period                                                              |   | $                                  | 19,796 |   |   | $ | 29,502 |   |

----

|                         |   December      31, 2007 | December      31, 2006  |   |
|------------------------------|------------------------------------|------------------------------|--------|
| Expected      life (years):  |                               |                         |   |
| Stock      options           | 3.4                                | 4.0                          |   |
| ESPP                         | 0.5                                | 0.5                          |   |
| Volatility:                  |                               |                         |   |
| Stock      options           | 70%                                | 96%                          |   |
| ESPP                         | 46%                                | 58%                          |   |
| Risk-free      interest rate | 4.5%                               | 4.7%                         |   |
| Dividend      yield          | 0%                                 | 0%                           |   |
|                         |                               |                         |   |

----

|                                  |   | Shares |      |   | Weighted      Average Exercise Price |   |   | Weighted      Average Remaining Contractual Term (in Years) |   |   | Aggregate      Intrinsic Value |   |
|---------------------------------------|--------|--------|-----------|--------|--------------------------------------|--------|--------|-------------------------------------------------------------|--------|--------|--------------------------------|--------|
| BEGINNING      OUTSTANDING            |   |   | 2,016,899 |   |                                 | $      | 11.37  |                                                        |   |   |                           |   |   |   |
| GRANTED                               |   |   |      |   |                                 |   |   |                                                        |   |   |                           |   |   |   |
|   Price =      Market Value |   |   | 216,616   |   |                                 | $      | 4.20   |                                                        |   |   |                           |   |   |   |
|     Total         |   |   | 216,616   |   |                                 | $      | 4.20   |                                                        |   |   |                           |   |   |   |
| EXERCISED                             |   |   | —   |   |                                 | $      | 4.20   |                                                        |   |   |                           |   |   |   |
| CANCELLED                             |   |   |      |   |                                 |   |   |                                                        |   |   |                           |   |   |   |
|  Forfeited                       |   |   | (4,375    | )      |                                 | $      | 4.60   |                                                        |   |   |                           |   |   |   |
|  Expired                         |   |   | (4,891    | )      |                                 | $      | 13.03  |                                                        |   |   |                           |   |   |   |
|  Total                           |   |   | (9,266    | )      |                                 | $      | 9.05   |                                                        |   |   |                           |   |   |   |
|                                  |   |   |      |   |                                 |   |   |                                                        |   |   |                           |   |   |   |
| ENDING      OUTSTANDING               |   |   | 2,224,249 |   |                                 | $      | 10.68  |                                                        |   |   | 4.61                           |   |   | $ | 0 |   |
| ENDING      VESTED + EXPECTED TO VEST |   |   | 2,180,635 |   |                                 | $      | 10.80  |                                                        |   |   | 4.52                           |   |   | $ | 0 |   |
| ENDING      EXERCISABLE               |   |   | 1,789,443 |   |                                 | $      | 12.16  |                                                        |   |   | 3.48                           |   |   | $ | 0 |   |
|                                  |   |   |      |   |                                 |   |   |                                                        |   |   |                           |   |   |   |   |   |

|                                    |   |   |                                                    |   |   |                                                                 |   |   |                                     |   |   |                                               |   |   |                                            |   |   |   |   |
|-----------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|----------------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|--------|--------|
|                                    |   |   |                                                    |   |   |                                                                 |   |   |                                     |   |   |                                               |   |   |                                            |   |   |   |   |
|                                    |   |   |                                                    |   |   |                                                                 |   |   |                                     |   |   |                                               |   |   | Weighted      Average                           |   |
| Range      of Exercise Prices |   |   | Number      OutstandingAs      ofDecember      31, 2007 |   |   | Weighted      Average Remaining ContractualTerm (in      years) |   |   | Weighted      AverageExercise      Price |   |   | NumberExercisable      As ofDecember      31, 2007 |   |   | Exercise      PriceAs      of December 31, 2007 |   |
| $                                       | 4.20   |   |                                                    | $      | 4.20   |                                                                 |   |   | 216,699                                  |   |   |                                               | 9.96   |   |                                            | $      | 4.20   |   |   |   | 83 |   |   | $ | 4.20 |   |
|                                    | 4.60   |   |                                                    |   | 4.60   |                                                                 |   |   | 292,361                                  |   |   |                                               | 8.65   |   |                                            |   | 4.60   |   |   |   | 118,572 |   |   |   | 4.60 |   |
|                                    | 4.68   |   |                                                    |   | 7.08   |                                                                 |   |   | 235,400                                  |   |   |                                               | 5.26   |   |                                            |   | 6.13   |   |   |   | 192,275 |   |   |   | 6.13 |   |
|                                    | 7.20   |   |                                                    |   | 8.28   |                                                                 |   |   | 59,162                                   |   |   |                                               | 7.45   |   |                                            |   | 8.19   |   |   |   | 59,162 |   |   |   | 8.19 |   |
|                                    | 12.00  |   |                                                    |   | 12.00  |                                                                 |   |   | 1,284,990                                |   |   |                                               | 2.68   |   |                                            |   | 12.00  |   |   |   | 1,284,990 |   |   |   | 12.00 |   |
|                                    | 12.36  |   |                                                    |   | 73.50  |                                                                 |   |   | 128,142                                  |   |   |                                               | 3.36   |   |                                            |   | 26.84  |   |   |   | 126,866 |   |   |   | 26.95 |   |
|                                    | 92.26  |   |                                                    |   | 92.26  |                                                                 |   |   | 416                                      |   |   |                                               | 2.19   |   |                                            |   | 92.26  |   |   |   | 416 |   |   |   | 92.26 |   |
|                                    | 92.52  |   |                                                    |   | 92.52  |                                                                 |   |   | 4,165                                    |   |   |                                               | 2.13   |   |                                            |   | 92.52  |   |   |   | 4,165 |   |   |   | 92.52 |   |
|                                    | 99.00  |   |                                                    |   | 99.00  |                                                                 |   |   | 2,498                                    |   |   |                                               | 2.24   |   |                                            |   | 99.00  |   |   |   | 2,498 |   |   |   | 99.00 |   |
|                                    | 105.00 |   |                                                    |   | 105.00 |                                                                 |   |   | 416                                      |   |   |                                               | 4.73   |   |                                            |   | 105.00 |   |   |   | 416 |   |   |   | 105.00 |   |
|                                    |   |   |                                                    |   |   |                                                                 |   |   |                                     |   |   |                                               |   |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| $                                       | 4.20   |   |                                                    | $      | 105.00 |                                                                 |   |   | 2,224,249                                |   |   |                                               | 4.61   |   |                                            | $      | 10.68  |   |   |   | 1,789,443 |   |   | $ | 12.16 |   |

|                                  |   | NumberofShares |     |   | Weighted      Avg.Grant      DateFair Value |   |
|---------------------------------------|--------|----------------|----------|--------|---------------------------------------------|--------|
| Balance,      September 30, 2007 |   |           | 436,362  |   |                                        | $      | 5.41 |   |
| Granted                               |   |           | 32,397   |   |                                        |   | — |   |
| Forfeited                             |   |           | (4,375   | )      |                                        |   | — |   |
| Released                              |   |           | (100,680 | )      |                                        |   | 4.82 |   |
| Balance,      December 31, 2007  |   |           | 363,704  |   |                                        | $      | 4.00 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                        |   | December      31,2007 |   |   | March      31,2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------|--------------------|--------|
| Raw      materials                                                                              |   | $                     | 4,911  |   |               | $      | 1,315 |   |
| Work      in      progress                                                                      |   |                  | 4,269  |   |               |   | 2,928 |   |
| Finished      goods and      spares                                                             |   |                  | 1,891  |   |               |   | 1,324 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                     | 11,071 |   |               | $      | 5,567 |   |

|                                                                      |   | Warranty      Activity for the Three      Months Ended  December      31, |   |   | Warranty      Activity for theNine      Months EndedDecember 31, |   |
|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------|--------|
|                                                                      |   | 2007                                                                                |   |   | 2006                                                             |   |   | 2007 |   |   | 2006 |   |
| Balance      at the beginning of the period                               |   | $                                                                                   | 1,435  |   |                                                             | $      | 800 |   |   | $ | 1,101 |   |   | $ | 723 |   |
| Additional      warranty accruals for warranties issued during the period |   |                                                                                | 719    |   |                                                             |   | 208 |   |   |   | 2,000 |   |   |   | 707 |   |
| Settlements      made during the period                                   |   |                                                                                | (201   | )      |                                                             |   | (156 | ) |   |   | (1,148 | ) |   |   | (578 | ) |
| Balance      at the end of the period                                     |   | $                                                                                   | 1,953  |   |                                                             | $      | 852 |   |   | $ | 1,953 |   |   | $ | 852 |   |

|                                                                                                                                                                                                         Three Months      Ended December      31,                        Nine      Months EndedDecember      31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                                                                                                     2007                        2006                      2007                             2006                                                                                                                                                                                                                                                                                           |   |   |
| Net      income (loss) applicable to common stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $ | 2,834 |   |   | $ | (6,125 | ) |   | $ | 2,888 |   |   | $ | (11,208 | ) |
| Basic      and diluted:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      weighted-average common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 7,148 |   |   |   | 7,082 |   |   |   | 7,120 |   |   |   | 7,044 |   |
| Dilutive      common equivalent shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 133 |   |   |   | — |   |   |   | 121 |   |   |   | — |   |
| Diluted      weighted-average shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 7,281 |   |   |   | 7,082 |   |   |   | 7,241 |   |   |   | 7,044 |   |
| Basic      net income (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $ | 0.40 |   |   | $ | (0.86 | ) |   | $ | 0.41 |   |   | $ | (1.59 | ) |
| Diluted      net income (loss) per      share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $ | 0.39 |   |   | $ | (0.86 | ) |   | $ | 0.40 |   |   | $ | (1.59 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                                                                                                                                                                                                                                                                                                                                  |   | Revenue      for theThree      Months Ended December 31, |   |   | Revenue      for theNine Months      Ended December31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|--------|-------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                  |   | 2007                                                     |   |   | 2006                                                        |   |   | 2007 |   |   | 2006 |   |
| Sales      to customers located in:                                                                                                                                                                                                                                                                                                                   |   |                                                     |   |   |                                                        |   |   |   |   |   |   |   |
| United      States                                                                     |   | $                                                        | 3,315  |   |                                                        | $      | 2,037 |   |   | $ | 4,431 |   |   | $ | 5,799 |   |
| Asia,      excluding      Japan                                                        |   |                                                     | 5,721  |   |                                                        |   | 1,311 |   |   |   | 8,923 |   |   |   | 5,923 |   |
| Japan                                                                                  |   |                                                     | 282    |   |                                                        |   | 377 |   |   |   | 474 |   |   |   | 2,053 |   |
| Germany                                                                                |   |                                                     | 733    |   |                                                        |   | 635 |   |   |   | 2,116 |   |   |   | 2,230 |   |
| Europe,      excluding      Germany                                                    |   |                                                     | 94     |   |                                                        |   | 17 |   |   |   | 9,599 |   |   |   | 61 |   |
| Total      sales                                                                                           |   | $                                                        | 10,145 |   |                                                        | $      | 4,377 |   |   | $ | 25,543 |   |   | $ | 16,066 |   |

|                                  |   | Long-lived      Assets      as ofDecember      31, |    |
|---------------------------------------|--------|----------------------------------------------------|---------|
|                                  |   | 2007                                               |    |   | 2006 |   |
| Long-lived      assets at period-end: |   |                                               |    |   |   |   |
| United      States                    |   | $                                                  | 2,171   |   |   | $ | 2,333 |   |
| Europe                                |   |                                               | 9       |   |   |   | 10 |   |
| Japan                                 |   |                                               | — |   |   |   | 7 |   |
| Total      long-lived assets          |   | $                                                  | 2,180   |   |   | $ | 2,350 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Three      MonthsEnded December 31, |   |   | Nine      MonthsEndedDecember 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------|-----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2007                                     |   |   | 2006                              |   |   | 2007 |   |   | 2006 |   |
| Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                     | 100.0  | %      |                              |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |
| Cost      of revenue                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 56.4   |   |                              |   | 130.3 |   |   |   | 59.8 |   |   |   | 77.8 |   |
| Gross      profit                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 43.6   |   |                              |   | (30.3 | ) |   |   | 40.2 |   |   |   | 22.2 |   |
| Operating      expenses:                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development expenses                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | 8.0    |   |                              |   | 24.6 |   |   |   | 10.3 |   |   |   | 19.5 |   |
| Sales      and marketing expenses                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 9.1    |   |                              |   | 21.7 |   |   |   | 12.6 |   |   |   | 18.4 |   |
| General      and administrative expenses                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     | 9.2    |   |                              |   | 70.0 |   |   |   | 14.1 |   |   |   | 55.1 |   |
| Total      operating expenses                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                     | 26.3   |   |                              |   | 116.3 |   |   |   | 37.0 |   |   |   | 93.0 |   |
| Other      income (expense)      net                                                                    |   |                                     | 10.6   |   |                              |   | 6.7 |   |   |   | 8.1 |   |   |   | 1.0 |   |
| Net      income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | 27.9   | %      |                              |   | (139.9 | %) |   |   | 11.3 | % |   |   | (69.8 | %) |

|                                         |   | Three      MonthsEndedDecember 31, |   |   | Nine      MonthsEndedDecember 31, |   |
|----------------------------------------------|--------|------------------------------------|--------|--------|-----------------------------------|--------|
|                                         |   | 2007                               |   |   | 2006                              |   |   | 2007 |   |   | 2006 |   |
| Revenue                                      |   | $                                  | 10,145 |   |                              | $      | 4,377 |   |   | $ | 25,543 |   |   | $ | 16,066 |   |
| Cost      of revenue                         |   |                               | 5,725  |   |                              |   | 5,703 |   |   |   | 15,262 |   |   |   | 12,494 |   |
| Gross      profit                            |   |                               | 4,420  |   |                              |   | (1,326 | ) |   |   | 10,281 |   |   |   | 3,572 |   |
| Operating      expenses:                     |   |                               |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |
|  Research      and development expenses |   |                               | 810    |   |                              |   | 1,077 |   |   |   | 2,645 |   |   |   | 3,139 |   |
| Sales      and marketing expenses            |   |                               | 923    |   |                              |   | 949 |   |   |   | 3,208 |   |   |   | 2,957 |   |
| General      and administrative expenses     |   |                               | 938    |   |                              |   | 3,063 |   |   |   | 3,589 |   |   |   | 8,850 |   |
| Total      operating expenses                |   |                               | 2,671  |   |                              |   | 5,089 |   |   |   | 9,442 |   |   |   | 14,946 |   |
| Other      income net                        |   |                               | 1,085  |   |                              |   | 290 |   |   |   | 2,049 |   |   |   | 166 |   |
| Net      income (loss)                       |   | $                                  | 2,834  |   |                              | $      | (6,125 | ) |   | $ | 2,888 |   |   | $ | (11,208 | ) |
| Net      income per share, basic             |   |                               | 0.40   |   |                              |   | (0.86 | ) |   |   | 0.41 |   |   |   | (1.59 | ) |
| Net      income per share, diluted           |   |                               | 0.39   |   |                              |   | (0.86 | ) |   |   | 0.40 |   |   |   | (1.59 | ) |
| Number      of shares outstanding            |   |                               |   |   |                              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                        |   |                               | 7,148  |   |                              |   | 7,082 |   |   |   | 7,120 |   |   |   | 7,044 |   |
| Diluted                                      |   |                               | 7,281  |   |                              |   | 7,082 |   |   |   | 7,241 |   |   |   | 7,044 |   |

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| Contractual      obligations:                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Total  |   |   | Less      than1 Year |   |   | 1-3 Years |   |   | 3-5 Years |   |   | After5 Years |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|----------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |                 |   |   |      |   |   |      |   |   |         |   |
|      Non-cancelable      operating lease obligations                                                                                                                                                                                                                                                                                                                                                                            |   |   | 1,000  |   |                 |   | 602    |      |   |   | 370       |   |   |         | 28     |   |   |   | — |   |
| Total      contractual cash      obligations                                                                   |   | $      | 1,000  |   |                 | $      | 602    |      |   | $      | 370       |   |   | $            | 28     |   |   | $ | — |   |

|   | (a) | Evaluation      of Disclosure Controls and Procedures. - Under the      supervision and with the participation of our management, our Chief      Executive Officer and Chief Financial Officer have evaluated the      effectiveness of our disclosure controls and procedures, as such term is      defined under Rule 13a-15(e) promulgated under the Securities Exchange Act      of 1934, as amended. Based upon that evaluation, our Chief Executive      Officer and our Chief Financial Officer concluded that the our disclosure      controls and procedures were effective as of the end of the period covered      by this report. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Changes in      Internal Controls over financial reporting. - As required by Rule      13a-15(d), our management, including our Chief Executive Officer and Chief      Financial Officer, also conducted an evaluation of our internal control      over financial reporting to determine whether any changes occurred during      the period covered by this report that have materially affected, or are      reasonably likely to materially affect, our internal control over      financial reporting. Based on that evaluation, there has been no such      change during the period covered by thisreport. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|            (c) | Limitations      of the effectiveness of internal control. - A      control system, no matter how well conceived and operated, can provide      only reasonable, not absolute, assurance that the objectives of the      internal control system are met. Because of the inherent limitations of      any internal control system, no evaluation of controls can provide      absolute assurance that all control issues, if any, within a company have      been detected. Notwithstanding these limitations, our disclosure controls      and procedures are designed to provide reasonable assurance of achieving      their objectives. Our Chief Executive Officer and Chief Financial Officer      have concluded that our disclosure controls and procedures are, in fact,      effective at the “reasonable assurance”level. |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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| ·   | our      timing of new systems and technology announcements and releases and      ability to transition between productversions; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | seasonal      fluctuations in sales; |
|--------------------|--------------------------------------|

| ·   | changes      in the mix of our revenues represented by our various products and      customers; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | adverse      changes in the level of economic activity in the United States or other      major economies in which we dobusiness; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------|

| ·   | foreign      currency exchange ratefluctuations; |
|--------------------|--------------------------------------------------|

| ·   | expenses      related to, and the financial impact of, possible acquisitions of other      businesses; and |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | changes      in the timing of product orders due to unexpected delays in the      introduction of our customers’ products, due to lifecycles of our      customers’ products ending earlier than expected or due to market      acceptance of our customers’products. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item6.   Exhibits

|  (a) | Exhibits |
|-----------|----------|

| 31.1 | Certifications      of the Chief Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.                            |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Certifications      of the Chief Financial Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.                            |
| 32   | Certifications      of the Chief Executive Officer and Chief Financial Officer pursuant to      Section 906 of the Sarbanes-Oxley Act of2002. |

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|                           | TEGAL      CORPORATION(Registrant)                                                                |
|--------------------------------|---------------------------------------------------------------------------------------------------|
|                           |                                                                                              |
|                           | /s/  CHRISTINE      HERGENROTHERChristine      HergenrotherChief      Financial Officer |
| Dated:      February 14 , 2008 |                                                                                              |

----

| 1. | I      have reviewed this quarterly report on Form 10-Q of Tegal      Corporation; |
|----|------------------------------------------------------------------------------------|

| 2. | Based      on my knowledge, this report does not contain any untrue statement of a      material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based      on my knowledge, the financial statements, and other financial information      included in this report, fairly present in all material respects the      financial condition, results of operations and cash flows of the      registrant as of, and for, the periods presented in this      report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The      registrant’s other certifying officer and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a-15(e) and 15d-14(e)) for the registrant      and we have: |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | designed      such disclosure controls and procedures, or caused such disclosure      controls and procedures to be designed under our supervision, to ensure      that material information relating to the registrant, including its      consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this report is being      prepared; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | evaluated      the effectiveness of the registrant’s disclosure controls and procedures      and presented in this report our conclusions about the effectiveness of      the disclosure controls and procedures, as of the end of the period      covered by this report based on suchevaluation; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c)   disclosed in this report      any change in the registrant’s internal control over financial reporting      that occurred during the registrant’s most recent fiscal quarter (the      registrant’s fourth fiscal quarter in                  the case      of an annual report) that has materially affected, or is reasonably likely      to materially affect, the registrant’s internal control over financial      reporting; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The      registrant’s other certifying officer(s) and I have disclosed, based on      our most recent evaluation of internal control over financial reporting,      to the registrant’s auditors and the audit committee of the registrant’s      board of directors (or persons performing the equivalent      function): |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | all      significant deficiencies and material weaknesses in the design or      operation of internal control over financial reporting which are      reasonably likely to adversely affect the registrant’s ability to record,      process, summarize and report financial information;  and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | any      fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant’s internal      controls over financial reporting. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 1. | I      have reviewed this quarterly report on Form 10-Q of Tegal      Corporation; |
|----|------------------------------------------------------------------------------------|

| 2. | Based      on my knowledge, this report does not contain any untrue statement of a      material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based      on my knowledge, the financial statements, and other financial information      included in this report, fairly present in all material respects the      financial condition, results of operations and cash flows of the      registrant as of, and for, the periods presented in this      report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The      registrant’s other certifying officer and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a-15(e) and 15d-14(e)) for the registrant      and we have: |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | designed      such disclosure controls and procedures, or caused such disclosure      controls and procedures to be designed under our supervision, to ensure      that material information relating to the registrant, including its      consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this  report      is being prepared; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | evaluated      the effectiveness of the registrant’s disclosure controls and procedures      and presented in this report our conclusions about the effectiveness of      the disclosure controls and procedures, as of the end of the period      covered by this report based on suchevaluation; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | disclosed      in this report any change in the registrant’s internal control over      financial reporting that occurred during the registrant’s most recent      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an      annual report) that has materially affected, or is reasonably likely to      materially affect, the registrant’s internal control over financial      reporting; and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The      registrant’s other certifying officer(s) and I have disclosed, based on      our most recent evaluation of internal control over financial reporting,      to the registrant’s auditors and the audit committee of the registrant’s      board of directors (or persons performing the equivalent      function): |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | all      significant deficiencies and material weaknesses in the design or      operation of internal control over financial reporting which are      reasonably likely to adversely affect the registrant’s ability to record,      process, summarize and report financial information;  and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | any      fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant’s internal      controls over financial reporting. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----