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

| Delaware                                                       | 87-0475073                        |
|----------------------------------------------------------------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |

|   | Large accelerated filer o                                             | Accelerated filer o         |
|--------|-----------------------------------------------------------------------|-----------------------------|
|   | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |

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MEDI

| ITEM 1. | FINANCIAL STATEMENTS                                                                                                                            | 3      |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |                                                                                                                                            |   |
|    | Condensed Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and June 30, 2009                                                        | 3      |
|    |                                                                                                                                            |   |
|    | Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31, 2010 and 2009 (Unaudited)                  | 4      |
|    |                                                                                                                                            |   |
|    | Condensed Consolidated Statement of Changes in Shareholders' Equity and Comprehensive Loss for the Nine Months Ended March 31, 2010 (Unaudited) | 5      |
|    |                                                                                                                                            |   |
|    | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2010 and 2009 (Unaudited)                                   | 6      |
|    |                                                                                                                                            |   |
|    | Notes to Condensed Consolidated Financial Statements                                                                                            | 7      |
|    |                                                                                                                                            |   |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                     | 22     |
|    |                                                                                                                                            |   |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                      | 30     |
|    |                                                                                                                                            |   |
| ITEM 4. | CONTROLS AND PROCEDURES                                                                                                                         | 30     |

| ITEM 1.    | LEGAL PROCEEDINGS                                           | 31     |
|------------|-------------------------------------------------------------|--------|
|       |                                                        |   |
| ITEM 1A.   | RISK FACTORS                                                | 31     |
|       |                                                        |   |
| ITEM 2.    | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 31     |
|       |                                                        |   |
| ITEM 3.    | DEFAULTS UPON SENIOR SECURITIES                             | 31     |
|       |                                                        |   |
| ITEM 4.    | (REMOVED AND RESERVED)                                      | 31     |
|       |                                                        |   |
| ITEM 5.    | OTHER INFORMATION                                           | 31     |
|       |                                                        |   |
| ITEM 6.    | EXHIBITS                                                    | 31     |
|       |                                                        |   |
| SIGNATURES |                                                        | 32     |

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ITEM 1.

MEDIA 

|                                                                                                                                                                                                                        |   | March 31, 2010 |       |   | June 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|----------|--------|
| ASSETS                                                                                                                                                                                                                      |   | (Unaudited)    |       |   | 2009     |   |
| CURRENT ASSETS:                                                                                                                                                                                                             |   |           |       |   |     |   |
|     Cash and cash equivalents                                                                                                                                                                           |   | $              | 157,744    |   |     | $      | 550,602 |   |
|     Accounts receivable, net                                                                                                                                                                            |   |           | 3,089,290  |   |     |   | 3,427,550 |   |
|     Inventories, net                                                                                                                                                                                    |   |           | 6,850,273  |   |     |   | 6,392,441 |   |
|     Taxes receivable                                                                                                                                                                                    |   |           | 77,264     |   |     |   | 20,257 |   |
|     Deferred tax assets                                                                                                                                                                                 |   |           | –    |   |     |   | 830,447 |   |
|     Prepaid expenses and other current assets                                                                                                                                                           |   |           | 330,371    |   |     |   | 541,153 |   |
|         Total Current Assets                                                                                                                                                        |   |           | 10,504,942 |   |     |   | 11,762,450 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| PROPERTY AND EQUIPMENT, NET                                                                                                                                                                                                 |   |           | 1,700,126  |   |     |   | 2,096,986 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| OTHER ASSETS:                                                                                                                                                                                                               |   |           |       |   |     |   |   |   |
|     Goodwill and other intangible assets, net                                                                                                                                                           |   |           | 3,584,231  |   |     |   | 3,584,231 |   |
|     Deferred tax assets                                                                                                                                                                                 |   |           | –    |   |     |   | 279,486 |   |
|     Other assets                                                                                                                                                                                        |   |           | 87,534     |   |     |   | 75,159 |   |
|         Total Other Assets                                                                                                                                                          |   |           | 3,671,765  |   |     |   | 3,938,876 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| TOTAL ASSETS                                                                                                                                                                                                                |   | $              | 15,876,833 |   |     | $      | 17,798,312 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
|     Accounts payable                                                                                                                                                                                    |   |           | 1,420,280  |   |     |   | 1,128,187 |   |
|     Accrued compensation and benefits                                                                                                                                                                   |   |           | 563,245    |   |     |   | 690,948 |   |
|     Other accrued expenses and current liabilities                                                                                                                                                      |   |           | 561,572    |   |     |   | 1,151,325 |   |
|     Short-term capital lease obligation                                                                                                                                                                 |   |           | –    |   |     |   | 69,815 |   |
|     Accrued product warranty costs                                                                                                                                                                      |   |           | 435,967    |   |     |   | 436,578 |   |
|     Deferred rent liability                                                                                                                                                                             |   |           | 30,572     |   |     |   | 63,863 |   |
|     Deferred revenue                                                                                                                                                                                    |   |           | 41,952     |   |     |   | 209,079 |   |
|         Total Current Liabilities                                                                                                                                                   |   |           | 3,053,588  |   |     |   | 3,749,795 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| OTHER LIABILITIES:                                                                                                                                                                                                          |   |           |       |   |     |   |   |   |
|     Long-term debt                                                                                                                                                                                      |   |           | 3,188,189  |   |     |   | 2,749,132 |   |
|     Deferred rent liability                                                                                                                                                                             |   |           | 34,853     |   |     |   | 58,010 |   |
|     10% subordinated debt, net of discount of $296,121 in March and $401,830 in June                                                                                                                    |   |           | 953,879    |   |     |   | 848,170 |   |
|     Deferred revenue, less current portion                                                                                                                                                              |   |           | –    |   |     |   | 38,708 |   |
|     Deferred tax liabilities                                                                                                                                                                            |   |           | 854,414    |   |     |   | – |   |
|         Total Other Liabilities                                                                                                                                                     |   |           | 5,031,335  |   |     |   | 3,694,020 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| TOTAL LIABILITIES                                                                                                                                                                                                           |   |           | 8,084,923  |   |     |   | 7,443,815 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                               |   |           |       |   |     |   |   |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| SHAREHOLDERS' EQUITY:                                                                                                                                                                                                       |   |           |       |   |     |   |   |   |
|     Preferred Stock, $.001 par value                                                                                                                                                                    |   |           |       |   |     |   |   |   |
|        Authorized 5,000,000 shares; none issued                                                                                                                                          |   |           | –    |   |     |   | – |   |
|     Common Stock, $.001 par value 25,000,000 shares authorized;                                                                                                                                         |   |           |       |   |     |   |   |   |
|         issued and outstanding, respectively, 13,370,041 and 12,699,914        shares in March and 12,397,757 and 11,771,966 shares in June |   |           | 12,700     |   |     |   | 11,772 |   |
|     Additional paid-in capital                                                                                                                                                                          |   |           | 13,158,093 |   |     |   | 13,000,680 |   |
|     Accumulated other comprehensive income (loss)                                                                                                                                                       |   |           | (28,360    | )      |     |   | 216 |   |
|     Accumulated deficit                                                                                                                                                                                 |   |           | (5,350,523 | )      |     |   | (2,658,171 | ) |
|         Total Shareholders' Equity                                                                                                                                                  |   |           | 7,791,910  |   |     |   | 10,354,497 |   |
|                                                                                                                                                                                                                        |   |           |       |   |     |   |   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                  |   | $              | 15,876,833 |   |     | $      | 17,798,312 |   |

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MEDIA

|                                                                                                                                                                       |   | Three Months EndedMarch 31, |       |   | Nine Months EndedMarch 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|--------|----------------------------|--------|
|                                                                                                                                                                       |   | 2010                        |       |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |
| NET REVENUES                                                                                                                                                               |   | $                           | 5,174,969  |   |                       | $      | 5,184,056 |   |   | $ | 16,268,038 |   |   | $ | 16,093,166 |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| COST OF GOODS SOLD:                                                                                                                                                        |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|     Cost of goods sold, excluding depreciation and        amortization, product warranty, shipping and freight |   |                        | 2,595,733  |   |                       |   | 2,298,917 |   |   |   | 7,576,338 |   |   |   | 7,474,487 |   |
|     Depreciation and amortization                                                                                                                      |   |                        | 85,247     |   |                       |   | 140,331 |   |   |   | 300,932 |   |   |   | 397,447 |   |
|     Product warranty                                                                                                                                   |   |                        | 468,261    |   |                       |   | 497,635 |   |   |   | 1,456,124 |   |   |   | 939,135 |   |
|     Shipping and freight                                                                                                                               |   |                        | 146,992    |   |                       |   | 144,652 |   |   |   | 414,244 |   |   |   | 408,417 |   |
|         Total cost of goods sold                                                                                                   |   |                        | 3,296,233  |   |                       |   | 3,081,535 |   |   |   | 9,747,638 |   |   |   | 9,219,486 |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                                                                                                               |   |                        | 1,878,736  |   |                       |   | 2,102,521 |   |   |   | 6,520,400 |   |   |   | 6,873,680 |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| OTHER COSTS AND EXPENSES:                                                                                                                                                  |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|     Research and development                                                                                                                           |   |                        | 367,310    |   |                       |   | 321,839 |   |   |   | 1,080,194 |   |   |   | 1,043,085 |   |
|     Selling, general and administrative, excluding        depreciation and amortization                        |   |                        | 2,227,374  |   |                       |   | 2,154,973 |   |   |   | 6,177,517 |   |   |   | 7,431,654 |   |
|     Depreciation and amortization                                                                                                                      |   |                        | 45,432     |   |                       |   | 87,305 |   |   |   | 183,230 |   |   |   | 273,705 |   |
|     Impairment charge                                                                                                                                  |   |                        | –    |   |                       |   | 1,121,401 |   |   |   | – |   |   |   | 1,121,401 |   |
|     Litigation settlement                                                                                                                              |   |                        | –    |   |                       |   | – |   |   |   | – |   |   |   | (1,500,000 | ) |
|         Total other costs and expenses                                                                                             |   |                        | 2,640,116  |   |                       |   | 3,685,518 |   |   |   | 7,440,941 |   |   |   | 8,369,845 |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                                                                                                                       |   |                        | (761,380   | )      |                       |   | (1,582,997 | ) |   |   | (920,541 | ) |   |   | (1,496,165 | ) |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Other income                                                                                                                                                               |   |                        | 213,769    |   |                       |   | – |   |   |   | 213,769 |   |   |   | – |   |
| Interest expense                                                                                                                                                           |   |                        | (89,347    | )      |                       |   | (72,712 | ) |   |   | (266,116 | ) |   |   | (201,868 | ) |
| Interest income                                                                                                                                                            |   |                        | 46         |   |                       |   | 70 |   |   |   | 117 |   |   |   | 3,037 |   |
| Gain (loss) on change in fair value of warrant liabilities                                                                                                                 |   |                        | 4,924      |   |                       |   | – |   |   |   | (38 | ) |   |   | – |   |
| Amortization of debt discount on convertible debt                                                                                                                          |   |                        | (37,856    | )      |                       |   | (28,211 | ) |   |   | (105,708 | ) |   |   | (54,422 | ) |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| LOSS BEFORE INCOME TAXES                                                                                                                                                   |   |                        | (669,844   | )      |                       |   | (1,683,850 | ) |   |   | (1,078,517 | ) |   |   | (1,749,418 | ) |
| Benefit (Provision) for income taxes                                                                                                                                       |   |                        | (2,033,167 | )      |                       |   | 188,102 |   |   |   | (1,934,579 | ) |   |   | 214,329 |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS                                                                                                                                                                   |   | $                           | (2,703,011 | )      |                       | $      | (1,495,748 | ) |   | $ | (3,013,096 | ) |   | $ | (1,535,089 | ) |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| LOSS PER SHARE                                                                                                                                                             |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|     Basic and diluted                                                                                                                                  |   | $                           | (0.22      | )      |                       | $      | (0.13 | ) |   | $ | (0.25 | ) |   | $ | (0.13 | ) |
|                                                                                                                                                                       |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| WEIGHTED AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE                                                                                                                     |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|     Basic and diluted                                                                                                                                  |   |                        | 12,291,692 |   |                       |   | 11,723,716 |   |   |   | 12,025,210 |   |   |   | 11,720,761 |   |

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MEDI

|                                                                                                                                                               |   |         |       |   |       |   |    | Accumulated   |   |   |          |   |   |          |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|------------|--------|---------|---------------|--------|--------|---------------|--------|--------|---------------|---------|
|                                                                                                                                                               |   |         |       |   | Additional |   |    | Other         |   |   |          |   |   | Total         |    |
|                                                                                                                                                               |   | Common Stock |       |   | Paid-in    |   |    | Comprehensive |   |   | Accumulated   |   |   | Shareholders' |    |
|                                                                                                                                                               |   | Shares       |       |   | Amount     |   |    | Capital       |   |   | Income (loss) |   |   | Deficit       |    |   | Equity |   |
| BALANCES, JUNE 30, 2009                                                                                                                                            |   |         | 11,771,966 |   |       | $      | 11,772  |          |   | $      | 13,000,680    |   |   | $             | 216     |   |   | $ | (2,658,171 | ) |   | $ | 10,354,497 |   |
| Cumulative effect of change in accounting principle – ASC Topic 815-10 adoption                                                                              |   |         | –    |   |       |   | – |          |   |   | (327,524      | )      |   |          | – |   |   |   | 320,744 |   |   |   | (6,780 | ) |
| Components of comprehensive loss:                                                                                                                                  |   |         |       |   |       |   |    |          |   |   |          |   |   |          |    |   |   |   |   |   |   |   |   |   |
|    Net loss                                                                                                                                         |   |         | –    |   |       |   | – |          |   |   | –       |   |   |          | – |   |   |   | (3,013,096 | ) |   |   | (3,013,096 | ) |
|    Cumulative translation adjustment                                                                                                                |   |         | –    |   |       |   | – |          |   |   | –       |   |   |          | (28,576 | ) |   |   | – |   |   |   | (28,576 | ) |
|        Total comprehensive loss                                                                                                 |   |         | –    |   |       |   | – |          |   |   | –       |   |   |          | – |   |   |   | – |   |   |   | (3,041,672 | ) |
|   Issuance of common stock for warrant     Repurchase and modification of     subordinated debt terms. |   |         | 400,000    |   |       |   | 400     |          |   |   | 6,418         |   |   |          |    |   |   |   |   |   |   |   | 6,818 |   |
|   Vested restricted stock units                                                                                                                          |   |         | 527,948    |   |       |   | 528     |          |   |   | (528          | )      |   |          | – |   |   |   | – |   |   |   | – |   |
|   Stock-based compensation expense                                                                                                                       |   |         | –    |   |       |   | – |          |   |   | 479,047       |   |   |          | – |   |   |   | – |   |   |   | 479,047 |   |
| BALANCES, MARCH 31, 2010                                                                                                                                           |   |         | 12,699,914 |   |       | $      | 12,700  |          |   | $      | 13,158,093    |   |   | $             | (28,360 | ) |   | $ | (5,350,523 | ) |   | $ | 7,791,910 |   |

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MEDIA

|                                                                                                                                                   |   | Nine Months EndedMarch 31, |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|
|                                                                                                                                                   |   | 2010                       |       |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                   |   |                       |       |   |   |   |
|     Net loss                                                                                                                       |   | $                          | (3,013,096 | ) |   | $ | (1,535,089 | ) |
| Adjustments to reconcile net loss to net cash provided (used) by operating activities:                                                                 |   |                       |       |   |   |   |   |   |
|             Depreciation and amortization                                                  |   |                       | 545,321    |   |   |   | 713,961 |   |
|             Stock-based compensation expense                                               |   |                       | 470,679    |   |   |   | 580,502 |   |
|             Deferred income taxes                                                          |   |                       | 1,934,579  |   |   |   | (214,329 | ) |
|             Impairment charge                                                              |   |                       | –    |   |   |   | 1,121,401 |   |
|             Provision for (reduction of) inventory obsolescence reserves                   |   |                       | (20,053    | ) |   |   | 39,479 |   |
|             Provision for returns and doubtful accounts allowance                          |   |                       | 109,239    |   |   |   | 7,655 |   |
|             Amortization of debt discount on convertible debt                              |   |                       | 105,708    |   |   |   | 54,422 |   |
|             Loss on change in fair value of warrant liabilities                            |   |                       | 38         |   |   |   | – |   |
|          Changes in operating assets and liabilities:                                                     |   |                       |       |   |   |   |   |   |
|              Accounts receivable                                                      |   |                       | 207,602    |   |   |   | 160,797 |   |
|              Inventories                                                              |   |                       | (429,411   | ) |   |   | 2,618,756 |   |
|              Income taxes                                                             |   |                       | (29,086    | ) |   |   | (14,908 | ) |
|              Prepaid expenses and other current assets                                |   |                       | 165,886    |   |   |   | 7,546 |   |
|              Accounts payable                                                         |   |                       | 293,197    |   |   |   | (1,725,191 | ) |
|              Accrued compensation and benefits                                        |   |                       | (131,042   | ) |   |   | (203,327 | ) |
|              Other accrued expenses and current liabilities                           |   |                       | (562,170   | ) |   |   | (1,018,262 | ) |
|              Accrued product warranty costs                                           |   |                       | (611       | ) |   |   | 117,912 |   |
|              Deferred rent liability                                                  |   |                       | (56,448    | ) |   |   | (35,288 | ) |
|              Deferred revenue                                                         |   |                       | (205,835   | ) |   |   | (294,091 | ) |
|                  Net cash provided (used) by operating activities |   |                       | (615,503   | ) |   |   | 381,946 |   |
|                                                                                                                                                   |   |                       |       |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                   |   |                       |       |   |   |   |   |   |
|     Purchases of property and equipment                                                                                            |   |                       | (148,461   | ) |   |   | (688,085 | ) |
|                  Net cash used in investing activities            |   |                       | (148,461   | ) |   |   | (688,085 | ) |
|                                                                                                                                                   |   |                       |       |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                   |   |                       |       |   |   |   |   |   |
|      Decrease in restricted cash                                                                                              |   |                       | 32,515     |   |   |   | – |   |
|      Bank credit line proceeds (repayments)                                                                                   |   |                       | 439,057    |   |   |   | (256,769 | ) |
|      Capital lease obligation repayments                                                                                      |   |                       | (69,815    | ) |   |   | (339,668 | ) |
|      Proceeds from issuance of subordinated convertible debt                                                                  |   |                       | –    |   |   |   | 1,250,000 |   |
|                  Net cash provided by financing activities        |   |                       | 401,757    |   |   |   | 653,563 |   |
|     Effect of exchange rate changes on cash and cash equivalents                                                                   |   |                       | (30,651    | ) |   |   | (35,453 | ) |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                                   |   |                       | (392,858   | ) |   |   | 311,971 |   |
|                                                                                                                                                   |   |                       |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                                         |   |                       | 550,602    |   |   |   | 236,571 |   |
|                                                                                                                                                   |   |                       |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                                               |   | $                          | 157,744    |   |   | $ | 548,542 |   |
|                                                                                                                                                   |   |                       |       |   |   |   |   |   |
| SUPPLEMENTAL CASH FLOW INFORMATION                                                                                                                     |   |                       |       |   |   |   |   |   |
|     Interest paid                                                                                                                  |   | $                          | 221,369    |   |   | $ | 177,271 |   |
|     Income taxes paid                                                                                                              |   | $                          | 49,160     |   |   | $ | 14,908 |   |
|                                                                                                                                                   |   |                       |       |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS                                                                                                       |   |                       |       |   |   |   |   |   |
|     Capital lease additions                                                                                                        |   | $                          | –    |   |   | $ | 528,488 |   |

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MEDIA

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| ·   | Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level 2 – inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level 3 – unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   | Fair Valueas ofMarch 31,2010 |    |   | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   |    | SignificantOtherObservableInputs (Level 2) |   |   | SignificantUnobservableInputs (Level 3) |   |   | Increases (decreases)during the ninemonths endedMarch 31, 2010 |    |
|---------------------------------|--------|------------------------------|---------|--------|-------------------------------------------------------------|--------|---------|-------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|----------------------------------------------------------------|---------|
| Liabilities:                    |   |                         |    |   |                                                        |   |    |                                            |   |   |                                         |   |   |                                                           |    |
|   Warrant obligations |   |                         | – |   |                                                        |   | – |                                            |   |   | –                                      |   |   |                                                           | – |   |   | $ | (38 | ) |

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|                                                                        |   | Increases (decreases) |          |
|-----------------------------------------------------------------------------|--------|-----------------------|---------------|
| Liabilities:                                                                |   |                  |          |
|   Balance as of July 1, 2009                                      |   | $                     | 6,780         |   |
|   Increase in fair value of warrants                              |   |                  | 4,962         |   |
|        Balance as of December 31, 2009   |   | $                     | 11,742        |   |
|   Decrease in fair value of warrants                              |   |                  | (4,924        | ) |
|   Fair value of warrants reclassified to equity at March 30, 2010 |   |                  | (6,818        | ) |
|        Balance as of March 31, 2010      |   | $                     |  – |   |

|                            | Original Value |   | July 1, 2009 |   | March 30, 2010 |   |
|---------------------------------|----------------|--------|--------------|--------|----------------|--------|
| Number of warrants              | 1,515          |   | 1,515        |   | 1,515          |   |
| Exercise price                  | $1.65          |   | $1.65        |   | $1.65          |   |
| Risk free interest rate         | 2.13%          |   | 1.53%        |   | 1.50%          |   |
| Expected warrant lives in years | 3.0            |   | 2.9          |   | 2.8            |   |
| Expected volatility             | 61.3%          |   | 74%          |   | 74%            |   |
| Expected dividend yields        | None           |   | None         |   | None           |   |
| Fair value per share            | $0.216         |   | $0.005       |   | $0.005         |   |
| Common stock price              | $1.43          |   | $0.17        | (a)    | $0.195         | (a)    |
| Fair value of warrants          | $327,524       |   | $6,780       |   | $6,818         |   |

|   | (a) | Due to the low average daily trading volume of our common stock, we have discounted the common stock price in the Black-Scholes valuation model to reflect the adverse impact on our share price which would result from a dramatic increase in the number of shares of our common stock outstanding upon the exercise of these warrants. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                       |   | Balance atJune 30, 2009 |       |   | CumulativeEffectAdjustment |   |     | Balance atJuly 1, 2009 |   |
|----------------------------|--------|-------------------------|------------|--------|----------------------------|--------|----------|------------------------|--------|
| Warrant liabilities        |   |                    | –    |   |                       | $      | 6,780    |                   |   | $ | 6,780 |   |
| Additional paid-in capital |   | $                       | 13,000,680 |   |                       | $      | (327,524 | )                      |   | $ | 12,673,156 |   |
| Accumulated deficit        |   | $                       | (2,658,171 | )      |                       | $      | 320,744  |                   |   | $ | (2,337,427 | ) |

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|                                                                                |               |   | March 31,2010 |      |   |          |   |
|-------------------------------------------------------------------------------------|--------------------|--------|---------------|-----------|--------|---------------|--------|
|                                                                                |               |   | (Unaudited)   |      |   | June 30, 2009 |   |
| Accounts receivable, net                                                            |               |   |          |      |   |          |   |
|       Accounts receivable, gross                      |               |   | $             | 3,284,735 |   |          | $      | 3,513,756 |   |
|       Allowance for doubtful accounts                 |               |   |          | (20,000   | )      |          |   | (50,000 | ) |
|       Allowance for returns                           |               |   |          | (175,445  | )      |          |   | (36,206 | ) |
|                                                                                |               |   | $             | 3,089,290 |   |          | $      | 3,427,550 |   |
|                                                                                |               |   |          |      |   |          |   |   |   |
| Inventories, net of reserves                                                        |               |   |          |      |   |          |   |   |   |
|       Raw materials                                   |               |   | $             | 2,246,678 |   |          | $      | 2,184,245 |   |
|       Finished goods                                  |               |   |          | 4,924,777 |   |          |   | 4,549,431 |   |
|       Less:  reserves for obsolescence      |               |   |          | (321,182  | )      |          |   | (341,235 | ) |
|                                                                                |               |   | $             | 6,850,273 |   |          | $      | 6,392,441 |   |
|                                                                                |               |   |          |      |   |          |   |   |   |
| Property and Equipment, net                                                         | Useful Lives       |   |          |      |   |          |   |   |   |
|       Equipment                                       | 3 – 7 years  |   | $             | 2,959,911 |   |          | $      | 2,801,027 |   |
|       Furniture and fixtures                          | 7 years            |   |          | 578,672   |   |          |   | 578,672 |   |
|       Automobiles                                     | 5 years            |   |          | 30,434    |   |          |   | 30,434 |   |
|       Leasehold improvements                          | 5 – 10 years |   |          | 915,397   |   |          |   | 895,909 |   |
|       Tooling and molds                               | 3 years            |   |          | 3,013,286 |   |          |   | 2,908,778 |   |
|       Construction-in-progress                        |               |   |          | 162,811   |   |          |   | 297,230 |   |
|                                                                                |               |   |          | 7,660,511 |   |          |   | 7,512,050 |   |
|       Less: Accumulated depreciation and amortization |               |   |          | 5,960,385 |   |          |   | 5,415,064 |   |
|                                                                                |               |   | $             | 1,700,126 |   |          | $      | 2,096,986 |   |
|                                                                                |               |   |          |      |   |          |   |   |   |
| Goodwill and other intangible assets, net                                           |               |   |          |      |   |          |   |   |   |
|       Goodwill                                        |               |   | $             | 3,965,977 |   |          | $      | 3,965,977 |   |
|       Other                                           | 1-5 years          |   |          | 46,000    |   |          |   | 46,000 |   |
|                                                                                |               |   |          | 4,011,977 |   |          |   | 4,011,977 |   |
|       Less: Accumulated amortization                  |               |   |          | 427,746   |   |          |   | 427,746 |   |
|                                                                                |               |   | $             | 3,584,231 |   |          | $      | 3,584,231 |   |

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|   |                                |   | March 31, 2010 |      |   |          |   |
|--------|-------------------------------------|--------|----------------|-----------|--------|---------------|--------|
|   |                                |   | (Unaudited)    |      |   | June 30, 2009 |   |
|   | Short-term capital lease obligation |   | $              | –   |   |          | $      | 69,815 |   |
|   |                                |   |           |      |   |          |   |   |   |
|   | Bank term notes                     |   | $              | 1,500,000 |   |          | $      | 1,500,000 |   |
|   | Bank line of credit                 |   |           | 1,688,189 |   |          |   | 1,249,132 |   |
|   | Less: current maturities            |   |           | –   |   |          |   | – |   |
|   | Long-term debt                      |   | $              | 3,188,189 |   |          | $      | 2,749,132 |   |
|   | Total bank debt                     |   | $              | 3,188,189 |   |          | $      | 2,818,947 |   |

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|                                                                                                                                                                               |   | Three Months EndedMarch 31, |       |   | Nine Months EndedMarch 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|--------|----------------------------|--------|
|                                                                                                                                                                               |   | 2010                        |       |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
| Numerator for basic and diluted:                                                                                                                                                   |   |                        |       |   |                       |   |   |   |   |   |   |   |
|     Net loss                                                                                                                                                   |   | $                           | (2,703,011 | )      |                       | $      | (1,495,748 | ) |   | $ | (3,013,096 | ) |   | $ | (1,535,089 | ) |
|                                                                                                                                                                               |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Denominator :                                                                                                                                                                      |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|     For basic loss per common share –    weighted average shares outstanding                                                         |   |                        | 12,291,692 |   |                       |   | 11,723,716 |   |   |   | 12,025,210 |   |   |   | 11,720,761 |   |
|     Effect of dilutive securities -  stock options,    unvested restricted stock units and warrants                              |   |                        | –    |   |                       |   | – |   |   |   | – |   |   |   | – |   |
|     For diluted loss per common share –    weighted average shares outstanding adjusted    for assumed exercises |   |                        | 12,291,692 |   |                       |   | 11,723,716 |   |   |   | 12,025,210 |   |   |   | 11,720,761 |   |
|                                                                                                                                                                               |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic loss per share                                                                                                                                                               |   | $                           | (0.22      | )      |                       | $      | (0.13 | ) |   | $ | (0.25 | ) |   | $ | (0.13 | ) |
|                                                                                                                                                                               |   |                        |       |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Diluted loss per share                                                                                                                                                             |   | $                           | (0.22      | )      |                       | $      | (0.13 | ) |   | $ | (0.25 | ) |   | $ | (0.13 | ) |

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|                               |   | Three Months EndedMarch 31, |    |   | Nine Months EndedMarch 31, |   |
|------------------------------------|--------|-----------------------------|---------|--------|----------------------------|--------|
|                               |   | 2010                        |    |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
| Anti-dilutive options and warrants |   |                        | 752,043 |   |                       |   | 864,073 |   |   |   | 752,043 |   |   |   | 843,889 |   |

|                                                                                                           |   | Three Months EndedMarch 31, |          |   | Nine Months EndedMarch 31, |   |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------------|--------|----------------------------|--------|
|                                                                                                           |   | 2010                        |          |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
| Stock-based compensation expense by type of award:                                                             |   |                        |          |   |                       |   |   |   |   |   |   |   |
|            Employee stock options                       |   | $                           | 69,034        |   |                       | $      | 81,006 |   |   | $ | 209,589 |   |   | $ | 243,352 |   |
|            Non-employee director stock options          |   |                        | –       |   |                       |   | 7,994 |   |   |   | – |   |   |   | 79,293 |   |
|            Non-employee restricted stock units          |   |                        | –       |   |                       |   | 7,350 |   |   |   | – |   |   |   | 22,050 |   |
|            Employee restricted stock units              |   |                        | 44,243        |   |                       |   | 72,484 |   |   |   | 185,596 |   |   |   | 213,241 |   |
|            Non-employee director restricted stock units |   |                        | 15,708        |   |                       |   | 48,501 |   |   |   | 83,862 |   |   |   | 84,349 |   |
| Forfeiture rate adjustment                                                                                     |   |                        | –       |   |                       |   | – |   |   |   | – |   |   |   | (56,751 | ) |
| Amounts capitalized as inventory                                                                               |   |                        | (3,237        | )      |                       |   | (249 | ) |   |   | (8,368 | ) |   |   | (5,032 | ) |
| Total stock-based compensation expense                                                                         |   | $                           | 125,748       |   |                       | $      | 217,086 |   |   | $ | 470,679 |   |   | $ | 580,502 |   |
| Tax effect of stock-based compensation recognized                                                              |   |                        | –       |   |                       |   | (72,103 | ) |   |   | – |   |   |   | (210,992 | ) |
| Net effect on net loss                                                                                         |   | $                           | 125,748       |   |                       | $      | 144,983 |   |   | $ | 470,679 |   |   | $ | 369,510 |   |
|                                                                                                           |   |                        |          |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| Excess tax benefit effect on:                                                                                  |   |                        |          |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|            Cash flows from operations                   |   | $                           |  – |   |                       | $      |  – |   |   | $ |  – |   |   | $ | – |   |
|            Cash flows from financing activities         |   | $                           |  – |   |                       | $      | – |   |   | $ | – |   |   | $ | – |   |
| Effect on loss per share:                                                                                      |   |                        |          |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|            Basic                                        |   | $                           | 0.01          |   |                       | $      | 0.01 |   |   | $ | 0.04 |   |   | $ | 0.03 |   |
|            Diluted                                      |   | $                           | 0.01          |   |                       | $      | 0.01 |   |   | $ | 0.04 |   |   | $ | 0.03 |   |

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|                                                                                         |   | Three Months EndedMarch 31, |    |   | Nine Months EndedMarch 31, |   |
|----------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|----------------------------|--------|
|                                                                                         |   | 2010 (b)                    |    |   | 2009 (a)                   |   |   | 2010 (b) |   |   | 2009 |   |
| Risk-free interest rate                                                                      |   |                        | – |   |                       |   | – |   |   |   | – |   |   |   | 2.8 | % |
| Dividend yield                                                                               |   |                        | – |   |                       |   | – |   |   |   | – |   |   |   | 0.0 | % |
| Expected stock price volatility                                                              |   |                        | – |   |                       |   | – |   |   |   | – |   |   |   | 58 | % |
| Average expected life of options                                                             |   |                        | – |   |                       |   | – |   |   |   | – |   |   |   | 3.2 years |   |
|                                                                                         |   |                        |    |   |                       |   |   |   |   |   |   |   |   |   |   |   |
| (a) No stock options were granted during the three months ended March 31, 2009.         |   |
| (b) No stock options were granted during the three or nine months ended March 31, 2010. |   |

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|   |                                  |   | Number ofShares |      |   | WeightedAverageExercise Price |   |
|--------|---------------------------------------|--------|-----------------|-----------|--------|-------------------------------|--------|
|   | Balance outstanding at June 30, 2009  |   |            | 1,085,216 |   |                          | $      | 3.41 |   |
|   | Nine months ended March 31, 2010:     |   |            |      |   |                          |   |   |   |
|   | Options granted                       |   |            | –   |   |                          |   | – |   |
|   | Options exercised                     |   |            | –   |   |                          |   | – |   |
|   | Options cancelled/expired/forfeited   |   |            | (13,608   | )      |                          |   | 2.16 |   |
|   | Balance outstanding at March 31, 2010 |   |            | 1,071,608 |   |                          | $      | 3.42 |   |

|   |                   |           |   | Options Outstanding |   |      | Options Exercisable                           |   |
|--------|------------------------|----------------|--------|---------------------|--------|-----------|-----------------------------------------------|--------|
|   | Range ofExercisePrices |           |   | NumberOutstanding   |   |      | WeightedAverageRemainingContractualLife-Years |   |   | WeightedAverageExercisePrice |   |   | NumberVested andExercisable |   |   | WeightedAverageExercisePrice |   |
|   |                   |           |   |                |   |      |                                          |   |   |   |   |   |   |   |   |   |   |
|   |                   | $0.43 to $0.85 |   |                |   | 26,600    |                                          |   |   | 3.1 |   |   | $ | 0.59 |   |   |   | 26,600 |   |   | $ | 0.59 |   |
|   |                   | $1.00 to $2.00 |   |                |   | 418,915   |                                          |   |   | 3.4 |   |   |   | 1.95 |   |   |   | 272,700 |   |   |   | 1.93 |   |
|   |                   | $2.01 to $6.33 |   |                |   | 626,093   |                                          |   |   | 4.7 |   |   |   | 4.52 |   |   |   | 462,743 |   |   |   | 4.55 |   |
|   |                   |           |   |                |   | 1,071,608 |                                          |   |   | 4.4 |   |   | $ | 3.42 |   |   |   | 762,043 |   |   | $ | 3.47 |   |

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|   |                                       |   | Number ofShares |     |   | Grant DateFair Value |   |     | WeightedAverage GrantDate Fair ValuePer Share |   |
|--------|--------------------------------------------|--------|-----------------|----------|--------|----------------------|--------|----------|-----------------------------------------------|--------|
|   | Balance unvested at June 30, 2009          |   |            | 625,791  |   |                 | $      | 773,510  |                                          |   | $ | 1.24 |   |
|   |                                       |   |            |     |   |                 |   |     |                                          |   |   |   |   |
|   | Nine months ended March 31, 2010:          |   |            |     |   |                 |   |     |                                          |   |   |   |   |
|   | Restricted stock units granted             |   |            | 577,000  |   |                 |   | 403,900  |                                          |   |   | 0.70 |   |
|   | Restricted stock units vested              |   |            | (527,948 | )      |                 |   | (513,425 | )                                             |   |   | 0.97 |   |
|   | Restricted stock units cancelled/forfeited |   |            | (4,716   | )      |                 |   | (9,432   | )                                             |   |   | 2.00 |   |
|   | Balance unvested at March 31, 2010         |   |            | 670,127  |   |                 | $      | 654,553  |                                          |   | $ | 0.98 |   |

|   |                                                                           |   | Three Months EndedMarch 31, |     |   | Nine Months EndedMarch 31, |   |
|--------|--------------------------------------------------------------------------------|--------|-----------------------------|----------|--------|----------------------------|--------|
|   |                                                                           |   | 2010                        |     |   | 2009                       |   |   | 2010 |   |   | 2009 |   |
|   | Accrued product warranty costsat the beginning of the period                   |   | $                           | 447,967  |   |                       | $      | 187,234 |   |   | $ | 436,578 |   |   | $ | 198,666 |   |
|   |                                                                           |   |                        |     |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|   |        Warranties accrued during the period |   |                        | 468,261  |   |                       |   | 497,635 |   |   |   | 1,456,124 |   |   |   | 939,135 |   |
|   |        Warranties settled during the period |   |                        | (480,261 | )      |                       |   | (368,291 | ) |   |   | (1,456,735 | ) |   |   | (821,223 | ) |
|   | Net change in accrued warranty costs                                           |   |                        | (12,000  | )      |                       |   | 129,344 |   |   |   | (611 | ) |   |   | 117,912 |   |
|   |                                                                           |   |                        |     |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|   | Accrued product warranty costsat the end of the period                         |   | $                           | 435,967  |   |                       | $      | 316,578 |   |   | $ | 435,967 |   |   | $ | 316,578 |   |

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ITEM 2

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|                                                | Fiscal Year 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |    | Fiscal Year 2009 |
|-----------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|------------------|
|                                                | 1st                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2st     | 3rd              |   | 1st |   | 2nd |   | 3rd |   | 4th |
|                                                | Quarter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Quarter | Quarter          |   | Quarter |   | Quarter |   | Quarter |   | Quarter |
| Net revenues                                        | $5,507                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $5,586  | $5,175           |   | $5,752 |   | $5,157 |   | $5,184 |   | $5,625 |
| Cost of goods sold                                  | $3,377                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $3,074  | $3,296           |   | $3,131 |   | $3,035 |   | $3,081 |   | $3,576 |
| Gross profit                                        | $2,129                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $2,512  | $1,879           |   | $2,621 |   | $2,122 |   | $2,103 |   | $2,049 |
| Gross margin                                        | 38.7%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 45.0%   | 36.3%            |   | 45.6% |   | 41.2% |   | 40.6% |   | 36.4% |
| Income (loss) from operations (a)(c)                | $(203)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $44     | $(761)           |   | $901 |   | $(814) |   | $(1,583) |   | $0 |
| Operating margin                                    | (3.7)%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | (0.0)%  | (14.7)%          |   | 15.7% |   | (15.8)% |   | (30.5)% |   | 0.0% |
| Net income (loss)(b)(c)(d)(e)                       | $(259)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $(51)   | $(2,703)         |   | $477 |   | $(517) |   | $(1,496) |   | $(140) |
| Diluted earnings (loss) per share                   | $(0.02)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $(0.00) | $(0.22)          |   | $0.04 |   | $(0.04) |   | $(0.13) |   | $(0.01) |
|                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    |             |   |   |   |   |   |   |   |   |
| Stock-based compensation included in above results: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    |             |   |   |   |   |   |   |   |   |
|     (a) Pretax                  | $187                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $159    | $126             |   | $155 |   | $208 |   | $217 |   | $197 |
|     (b) After-tax               | $187                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $159    | $126             |   | $84 |   | $141 |   | $145 |   | $132 |
|                                                |     (c) 1st quarter 2009 includes the benefit of the $1,500 litigation settlement (about $990 after tax).     (d)3rd quarter 2009 includes $1,121 (about $740 after tax) of impairment charges primarily associated with the closure of the Company’s manufacturing operations in China.  4th quarter 2009 includes $112 (about $74 after tax) of recoveries and cash charges realized related to the impairment.    (e) 3rd & 4th quarter 2009, respectively, include a $323 and $209 non-cash charge related to state deferred tax asset valuation allowances.  3rd quarter 2010 includes a $2,033 non-cash charge primarily related to a valuation allowance for federal deferred tax assets. |

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| ·   | A $1,500,000 litigation settlement received in August 2008.  The settlement was recorded as a reduction in operating expense as it represented a recovery of legal fees previously incurred; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A $1,250,000 convertible debt financing completed on September 24, 2008, which is describe in Note 4. |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | Ratio of Debt to Tangible Net Worth -- The Borrower is not to cause or permit its ratio of total liabilities to Tangible Net Worth to be more than 2.5:1, tested quarterly. Tangible Net Worth is defined as book net worth less all intangible assets. Both total liabilities and Tangible Net Worth are to be determined according to GAAP. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Fixed Charge Coverage Ratio -- The Borrower is not to cause or permit its Fixed Charge coverage ratio, tested quarterly, on a rolling nine month basis for the quarter ending June 30, 2010, and on a rolling twelve month basis for the quarter ending September 30, 2010; and thereupon for each quarter thereafter based on a trailing 12 month basis to be less than 1.05:1.  Fixed Charge is defined as earnings before interest, taxes, depreciation and amortization ("EBITDA") (including an add back for non-cash stock based compensation) less the sum of: cash taxes; cash capital expenditures; any cash dividends, distributions or loans, and other cash payments not captured on the current profit and loss statement, divided by principal payments on term debt (or capital leases), and cash interest. For all of the foregoing determinations, any equity contribution made to the Borrower and (for the period of October 1, 2009 through September 30, 2010 only), indebtedness subordinated to the Debt on terms acceptable to Lender will be applied to offset cash capital expenditures. For those of the foregoing determinations made during fiscal periods of 2010 only which will be determined on a rolling twelve month basis, cash received by Borrower from convertible debt offerings and associated warrants will be applied to offset cash capital expenditures. |
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ITEM 3

ITEM 4.

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ITEM 1.

ITEM 1A

ITEM 2

ITEM 3

ITEM 4

ITEM 5

ITEM 6

| Exhibit No. |   | Description                                                                                                                                                                |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1         |   | Asset Purchase Agreement (incorporated by reference to Exhibit 2.1 of Form 8-K, filed on April 28, 2010)                                                                   |
| 10.1        |   | Modification Agreement with Microcapital Fund L.P. (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 30, 2010)                                        |
| 10.2        |   | Repurchase Agreement, Series A Warrants, with Microcapital Fund L.P. (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 30, 2010)                      |
| 10.3        |   | Repurchase Agreement, Series B Warrants, with Microcapital Fund L.P. (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 30, 2010)                      |
| 10.4        |   | Modification Agreement with Microcapital Fund Ltd (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 30, 2010)                                         |
| 10.5        |   | Repurchase Agreement, Series A Warrants, with Microcapital Fund Ltd (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 30, 2010)                       |
| 10.6        |   | Repurchase Agreement, Series B Warrants, with Microcapital Fund Ltd (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on March 30, 2010)                       |
| 10.7        |   | Fifth Agreement of Amendment to Revolving Loan and Security Agreement and Other Documents (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on April 28, 2010) |
| 10.8*       |   | Sixth Agreement of Amendment to Revolving Loan and Security Agreement and Other Documents                                                                                  |
| 31.1*       |   | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)                                                                      |
| 31.2*       |   | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)                                                                      |
| 32.1*       |   | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350                                                                                                |
| 32.2*       |   | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350                                                                                                |

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SIGNATURES

|                           | MEDIA SCIENCES INTERNATIONAL, INC. |
|--------------------------------|------------------------------------|
|                           |                               |   |
| Dated:  May 13, 2010 | By:                                | /s/ Michael W. Levin |   |
|                           |                               | Michael W. Levin |   |
|                           |                               | Chief Executive Officer |   |
|                           |                               |   |   |
| Dated:  May 13, 2010 | By:                                | /s/ Kevan D. Bloomgren |   |
|                           |                               | Kevan D. Bloomgren |   |
|                           |                               | Chief Financial Officer |   |
|                           |                               |   |   |

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