##### 



Exhibit 13
  
 TABLE OF CONTENTS
 Page(s)Report of Independent Registered Public Accounting Firm
    
    
    F-2Financial Statements:Consolidated Balance Sheets
    
    
    F-3  F-4Consolidated Statements of Operations
    
    
    F-5Consolidated Statements of Shareholders Equity and Comprehensive
Loss
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8  F-21
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-2




---



##### 



2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,763,702
    
    
    $
    1,563,433Short-term investments
    
    
    3,000,000
    
    
    
    1,137,647Accounts receivable, net
    
    
    1,240,141
    
    
    
    716,587Income tax receivable
    
    
    113,304
    
    
    
    270,934Inventories
    
    
    823,601
    
    
    
    757,062Other
    
    
    272,035
    
    
    
    353,178Total current assets
    
    
    9,212,783
    
    
    
    4,798,841Property, plant, and equipment, net
    
    
    1,431,749
    
    
    
    1,079,438Intangible assets, net of accumulated
amortization of $431,097 and $327,586,
respectively
    
    
    308,093
    
    
    
    411,604Deferred tax assets
    
    
    93,819
    
    
    
    111,361Total assets
    
    $
    11,046,444
    
    
    $
    6,401,244
  F-3




---



##### 



2007
    
    
    2006Liabilities and Shareholders EquityCurrent liabilities:Current maturities  long-term debt
    
    $
    78,431
    
    
    $
    41,658Deferred rent  current
    
    
    35,000
    
    
    
    Accounts payable
    
    
    544,507
    
    
    
    506,793Accrued liabilities:Compensation
    
    
    887,253
    
    
    
    411,708Restructuring reserve
    
    
    221,259
    
    
    
    Consulting fees and
outside services
    
    
    273
    
    
    
    155,396Warrant liability
    
    
    
    
    
    
    665,356Other
    
    
    238,885
    
    
    
    350,877Total current liabilities
    
    
    2,005,608
    
    
    
    2,131,788Long-term debt  less current maturities
    
    
    427,382
    
    
    
    389,241Deferred rent  less current portion
    
    
    214,381
    
    
    
    Accrued pension liability
    
    
    596,026
    
    
    
    473,165Total liabilities
    
    
    3,243,397
    
    
    
    2,994,194Commitments and ContingenciesShareholders equity:Common stock $.01 par value;
40,000,000 shares authorized, 11,614,330 and
6,937,786 shares issued and
outstanding at March 31, 2007 and
2006, respectively
    
    
    116,143
    
    
    
    69,378Additional paid-in capital
    
    
    23,996,818
    
    
    
    14,831,787Accumulated deficit
    
    
    (16,010,990
    )
    
    
    (11,034,100
    )Accumulated other comprehensive loss
    
    
    (298,924
    )
    
    
    (460,015
    )Total shareholders equity
    
    
    7,803,047
    
    
    
    3,407,050Total liabilities and shareholders equity
    
    $
    11,046,444
    
    
    $
    6,401,244
  F-4




---



##### 



2007
    
    
    2006Net sales
    
    $
    8,311,001
    
    
    $
    6,142,612Cost of goods sold
    
    
    2,590,535
    
    
    
    1,837,716Gross profit
    
    
    5,720,466
    
    
    
    4,304,896Operating expensesGeneral and administrative
    
    
    3,199,500
    
    
    
    2,958,982Research and development
    
    
    2,276,526
    
    
    
    3,324,201Selling and marketing
    
    
    5,216,765
    
    
    
    3,399,89610,692,791
    
    
    
    9,683,079Operating loss
    
    
    (4,972,325
    )
    
    
    (5,378,183
    )Other income (expense)Interest income
    
    
    119,534
    
    
    
    142,379Interest expense
    
    
    (38,096
    )
    
    
    (29,494
    )Warrant benefit (expense)
    
    
    (29,068
    )
    
    
    707,320Foreign currency exchange gain (loss)
    
    
    26,610
    
    
    
    (31,195
    )Other, net
    
    
    62,791
    
    
    
    (413
    )141,771
    
    
    
    788,597Loss before income taxes
    
    
    (4,830,554
    )
    
    
    (4,589,586
    )Income tax expense (benefit)
    
    
    146,336
    
    
    
    (46,873
    )Net loss
    
    $
    (4,976,890
    )
    
    $
    (4,542,713
    )Basic and diluted loss per common share
    
    $
    (0.58
    )
    
    $
    (0.67
    )Weighted average common shares outstanding:Basic and diluted
    
    
    8,591,454
    
    
    
    6,746,412
  F-5




---



##### 



AccumulatedAdditional
    
    
    
    
    
    Other
    
    TotalCommon Stock
    
    Paid-in
    
    Accumulated
    
    Comprehensive
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    Loss
    
    EquityBalance at March 31, 2005
    
    
    4,699,597
    
    
    $
    46,996
    
    
    $
    9,366,644
    
    
    $
    (6,491,387
    )
    
    $
    (130,357
    )
    
    $
    2,791,896Proceeds from private
placement, net of
costs of $934,679
    
    
    2,147,142
    
    
    
    21,471
    
    
    
    6,558,847
    
    
    
    
    
    
    
    
    
    
    
    6,580,318Reissue of warrants plus
registration
costs of $21,234
    
    
    
    
    
    
    
    
    
    
    (1,394,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,394,000
    )Liquidated damages
settlement shares
    
    
    57,381
    
    
    
    574
    
    
    
    150,403
    
    
    
    
    
    
    
    
    
    
    
    150,977Proceeds from exercise of
stock options
    
    
    33,666
    
    
    
    337
    
    
    
    45,362
    
    
    
    
    
    
    
    
    
    
    
    45,699Extension of employee
options after termination
    
    
    
    
    
    
    
    
    
    
    104,531
    
    
    
    
    
    
    
    
    
    
    
    104,531Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,542,713
    )
    
    
    (329,658
    )
    
    
    (4,872,371
    )Balance at March 31, 2006
    
    
    6,937,786
    
    
    
    69,378
    
    
    
    14,831,787
    
    
    
    (11,034,100
    )
    
    
    (460,015
    )
    
    
    3,407,050Proceeds from private
placement, net of
costs of $275,305
    
    
    1,389,999
    
    
    
    13,900
    
    
    
    1,795,844
    
    
    
    
    
    
    
    
    
    
    
    1,809,744Proceeds from follow-on
offering, net of
costs of $562,872
    
    
    2,430,000
    
    
    
    24,300
    
    
    
    4,272,878
    
    
    
    
    
    
    
    
    
    
    
    4,297,178Proceeds from exercise
of warrants, net of
registration costs of $13,473
    
    
    662,942
    
    
    
    6,629
    
    
    
    1,305,782
    
    
    
    
    
    
    
    
    
    
    
    1,312,411Reclassification of
warrant liability to equity
upon exercise of warrants
    
    
    
    
    
    
    
    
    
    
    694,424
    
    
    
    
    
    
    
    
    
    
    
    694,424Proceeds from exercise
of stock options
    
    
    175,849
    
    
    
    1,758
    
    
    
    305,379
    
    
    
    
    
    
    
    
    
    
    
    307,137Employee Retirement
Savings Plan Contribution
    
    
    17,754
    
    
    
    178
    
    
    
    44,207
    
    
    
    
    
    
    
    
    
    
    
    44,385Share-Based Compensation
    
    
    
    
    
    
    
    
    
    
    746,517
    
    
    
    
    
    
    
    
    
    
    
    746,517Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,976,890
    )
    
    
    161,091
    
    
    
    (4,815,799
    )Balance at March 31, 2007
    
    
    11,614,330
    
    
    $
    116,143
    
    
    $
    23,996,818
    
    
    $
    (16,010,990
    )
    
    $
    (298,924
    )
    
    $
    7,803,047
  F-6




---



##### 



2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (4,976,890
    )
    
    $
    (4,542,713
    )Adjustments to reconcile net loss to net cash used in operations:Depreciation and amortization
    
    
    299,849
    
    
    
    261,496Loss (gain) on disposal of equipment
    
    
    (3,568
    )
    
    
    1,343Warrant expense (benefit)
    
    
    29,068
    
    
    
    (707,320
    )Stock-based consulting expense
    
    
    61,972
    
    
    
    Stock-based compensation expense
    
    
    684,545
    
    
    
    Stock-based severance expense
    
    
    
    
    
    
    104,531Deferred income taxes
    
    
    20,230
    
    
    
    (16,015
    )Deferred rent
    
    
    (32,083
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (447,709
    )
    
    
    163,701Inventories
    
    
    21,114
    
    
    
    (280,505
    )Other current assets and income tax receivable
    
    
    278,394
    
    
    
    (362,009
    )Accounts payable
    
    
    17,229
    
    
    
    158,381Accrued liabilities
    
    
    429,919
    
    
    
    585,992Accrued pension liability, net
    
    
    81,611
    
    
    
    62,454Net cash used in operating activities
    
    
    (3,536,319
    )
    
    
    (4,570,664
    )Cash flows from investing activities:Purchases of short-term investments
    
    
    (3,020,220
    )
    
    
    (4,768,323
    )Proceeds from sales of short-term investments
    
    
    1,157,867
    
    
    
    3,718,036Purchases of property, plant and equipment
    
    
    (196,417
    )
    
    
    (252,238
    )Proceeds from sales of equipment
    
    
    4,294
    
    
    
    Payments for intangible assets
    
    
    
    
    
    
    (454,167
    )Net cash used in investing activities
    
    
    (2,054,476
    )
    
    
    (1,756,692
    )Cash flows from financing activities:Proceeds from long-term obligations
    
    
    211,000
    
    
    
    Repayment of long-term obligations
    
    
    (177,838
    )
    
    
    (41,847
    )Proceeds from issuance of common stock and warrants and exercise of
options
    
    
    7,726,470
    
    
    
    6,604,693Net cash provided by financing activities
    
    
    7,759,632
    
    
    
    6,562,846Effect of exchange rates on cash and cash equivalents
    
    
    31,432
    
    
    
    (77,381
    )Net increase in cash and cash equivalents
    
    
    2,200,269
    
    
    
    158,109Cash and cash equivalents at beginning of year
    
    
    1,563,433
    
    
    
    1,405,324Cash and cash equivalents at end of year
    
    $
    3,763,702
    
    
    $
    1,563,433Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    31,693
    
    
    $
    21,299Cash paid (received) during the year for income taxes
    
    $
    (54,859
    )
    
    $
    94,442Supplemental disclosure of non-cash financing and investing activities:Employee retirement savings plan contribution issued in common shares
    
    $
    44,385
    
    
    $
    Shares issued for liquidated damages settlement
    
    
    
    
    
    
    150,977Property, plant and equipment additions funded by lessor allowance
and classified as deferred rent
    
    
    280,000
    
    
    
    
  F-7




---



##### 



Nature of Business.
 Principles of Consolidation.
 Revenue Recognition.
 Use of Estimates.
 Disclosures About Fair Value of Financial Instruments.
 
    
    Cash equivalents and short-term investments:The carrying amount approximates fair
value because of the short maturity of these instruments.
    
    Notes payable:The Company has estimated the fair value of its notes payable based on
the current rates offered to the Company for similar instruments with the same remaining
maturities and similar collateral requirements. At March 31, 2007 and 2006, the fair value
of the Companys notes payable approximated their carrying value.
 Cash and Cash Equivalents.
 Short-term Investments.
 Accounts Receivable
 F-8




---



##### 



Inventories.
 2007
    
    
    2006Raw materials
    
    $
    254,988
    
    
    $
    340,268Work-in-process
    
    
    20,773
    
    
    
    26,183Finished goods
    
    
    547,840
    
    
    
    390,611$
    823,601
    
    
    $
    757,062
  Property, Plant, and Equipment.
 2007
    
    
    2006Land
    
    $
    163,383
    
    
    $
    148,402Building
    
    
    729,798
    
    
    
    662,882Leasehold improvements
    
    
    690,413
    
    
    
    369,741Equipment
    
    
    1,339,892
    
    
    
    1,162,1852,923,486
    
    
    
    2,343,210Less accumulated depreciation
    
    
    (1,491,737
    )
    
    
    (1,263,772
    )$
    1,431,749
    
    
    $
    1,079,438
  Intangible Assets.
 March 31, 2007GrossEstimated
    
    Carrying
    
    
    AccumulatedLives (Years)
    
    Amount
    
    
    Amortization
    
    
    Net valueLicensed technology
    
    5
    
    $
    501,290
    
    
    $
    208,373
    
    
    $
    292,917Patents and inventions
    
    6
    
    
    237,900
    
    
    
    222,724
    
    
    
    15,176$
    739,190
    
    
    $
    431,097
    
    
    $
    308,093March 31, 2006Licensed technology
    
    5
    
    $
    501,290
    
    
    $
    111,183
    
    
    $
    390,107Patents and inventions
    
    6
    
    
    237,900
    
    
    
    216,403
    
    
    
    21,497$
    739,190
    
    
    $
    327,586
    
    
    $
    411,604
 F-9




---



##### 



2008
    
    $
    101,0002009
    
    
    101,0002010
    
    
    98,0002011
    
    
    8,000$
    308,000
 Impairment of Long-Lived Assets
  Product Warranty
 Deferred Rent.
 Foreign Currency Translation.
  Stock-Based Compensation.
  F-10




---



##### 



Net loss  As reported
    
    $
    (4,542,713
    )Deduct: Pro forma stock-based employee compensation expense
determined under fair value-based method
    
    
    (3,062,324
    )Net loss  Pro forma
    
    $
    (7,605,037
    )Net loss per common share  As reported:Basic and diluted
    
    $
    (0.67
    )Net loss per common share  Pro forma:Basic and diluted
    
    $
    (1.13
    )
  Income Taxes.
 Basic and Diluted Net Loss per Common Share.
 Number of
    
    
    Range ofOptions/Warrants
    
    
    exercise pricesYears ended:March 31, 2007
    
    
    4,336,344
    
    
    $
    1.105.30March 31, 2006
    
    
    3,875,473
    
    
    $
    0.90-10.50
 New Accounting Pronouncements
  F-11




---



##### 



Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement 109
 Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans Employers Accounting for
Pensions Employers Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits Employers Accounting for Postretirement
Benefits Other than Pensions Employers Disclosures about Pensions and Other
Postretirement Benefits
 Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,
 The Fair Value Option for Financial Assets and
Financial Liabilities,
   2007
    
    
    2006$100,000 secured note, monthly payments $3,151,
inclusive of interest, through June 2009, at a
fixed interest rate of 8.25% per annum.
    
    $
    77,280
    
    
    $
    Mortgage note, monthly payments of $3,234
plus interest through December 2017, at a
fixed interest rate of 4.7% per annum from May 2006
through April 2011.
    
    
    418,565
    
    
    
    415,422Note payable, monthly payments of $588 plus interest through August 2008 at
a fixed rate of 4.4% per annum.
    
    
    9,968
    
    
    
    15,477$
    505,813
    
    
    $
    430,899Less current maturities
    
    
    78,431
    
    
    
    41,658$
    427,382
    
    
    $
    389,241
 F-12




---



##### 



2008
    
    $
    78,0002009
    
    
    77,0002010
    
    
    48,0002011
    
    
    39,0002012
    
    
    39,000Thereafter
    
    
    225,000$
    506,000
  
   Stock Options.
    Weighted Avg.
    
    
    AggregateNumber of Shares
    
    
    Exercise Price
    
    
    Intrinsic ValueBalance at March 31, 2005
    
    
    1,720,859
    
    
    $
    3.96Granted
    
    
    330,000
    
    
    
    3.20Exercised
    
    
    (33,666
    )
    
    
    1.36Cancelled
    
    
    (128,866
    )
    
    
    4.94Balance at March 31, 2006
    
    
    1,888,327
    
    
    
    3.80Options granted
    
    
    686,000
    
    
    
    2.46Options exercised
    
    
    (175,849
    )
    
    
    1.75Options surrendered
    
    
    (228,612
    )
    
    
    3.10Balance at March 31, 2007
    
    
    2,169,866
    
    
    $
    3.62
    
    
    $
    1,125,000Options exercisable at
March 31, 2007
    
    
    1,666,282
    
    
    $
    3.95
    
    
    $
    759,000
 F-13




---



##### 



WeightedaverageNumber
    
    
    remainingExercise
    
    of shares
    
    
    life in
    
    
    Numberprice
    
    outstanding
    
    
    years
    
    
    exercisable$1.10
    
    
    251,000
    
    
    
    0.43
    
    
    
    251,0001.82
    
    
    135,000
    
    
    
    4.41
    
    
    
    45,0002.10
    
    
    10,000
    
    
    
    4.17
    
    
    
    2,5002.25
    
    
    18,000
    
    
    
    0.41
    
    
    
    18,0002.40
    
    
    10,000
    
    
    
    3.99
    
    
    
    5,0002.47
    
    
    10,000
    
    
    
    2.15
    
    
    
    02.50
    
    
    300,000
    
    
    
    9.14
    
    
    
    100,0002.52
    
    
    10,000
    
    
    
    4.66
    
    
    
    2,5002.63
    
    
    98,000
    
    
    
    6.85
    
    
    
    02.70
    
    
    10,000
    
    
    
    0.13
    
    
    
    5,0002.75
    
    
    30,000
    
    
    
    2.57
    
    
    
    30,0002.80
    
    
    53,000
    
    
    
    0.62
    
    
    
    50,7502.85
    
    
    61,666
    
    
    
    2.04
    
    
    
    29,9992.90
    
    
    10,000
    
    
    
    4.58
    
    
    
    3,3333.00
    
    
    100,000
    
    
    
    8.63
    
    
    
    100,0003.45
    
    
    40,000
    
    
    
    2.92
    
    
    
    03.50
    
    
    10,000
    
    
    
    1.51
    
    
    
    10,0003.75
    
    
    5,000
    
    
    
    2.29
    
    
    
    5,0003.80
    
    
    20,000
    
    
    
    3.51
    
    
    
    20,0004.10
    
    
    500
    
    
    
    2.86
    
    
    
    5004.20
    
    
    25,000
    
    
    
    0.15
    
    
    
    25,0005.19
    
    
    500,000
    
    
    
    7.76
    
    
    
    500,0005.30
    
    
    462,700
    
    
    
    2.48
    
    
    
    462,7002,169,866
    
    
    
    
    
    
    
    1,666,282
  2007
    
    
    2006Expected life in years
    
    
    6.92
    
    
    
    6.52Risk-free interest rate (%)
    
    
    4.92
    %
    
    
    4.39
    %Expected volatility (%)
    
    
    102.5
    %
    
    
    116
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
  F-14




---



##### 



Accelerated Vesting.
  Warrants.
     Other Comprehensive Loss.
 Accumulated
    
    
    Accumulatedtranslation
    
    
    additional pensionadjustment
    
    
    liability
    
    
    TotalBalance at March 31, 2005
    
    $
    (64,573
    )
    
    $
    (65,784
    )
    
    $
    (130,357
    )Translation adjustment
    
    
    (206,356
    )
    
    
    
    
    
    
    (206,356
    )Pension related
    
    
    
    
    
    
    (123,302
    )
    
    
    (123,302
    )Balance at March 31, 2006
    
    $
    (270,929
    )
    
    $
    (189,086
    )
    
    $
    (460,015
    )Translation adjustment
    
    
    178,359
    
    
    
    
    
    
    
    178,359Pension related
    
    
    
    
    
    
    (17,268
    )
    
    
    (17,268
    )Balance at March 31, 2007
    
    $
    (92,570
    )
    
    $
    (206,354
    )
    
    $
    (298,924
    )
 F-15




---



##### 



Restructuring Reserve.
 Royalties.
  Purchase Requirements
 Operating Lease Commitments.
 2008
    
    $
    271,0002009
    
    
    239,0002010
    
    
    187,0002011
    
    
    185,0002012
    
    
    184,000Thereafter
    
    
    307,000$
    1,373,000
  Employment Agreements.
 Product Liability.
 F-16




---



##### 



Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
 Before Adoption of
    
    
    
    
    
    After Adoption ofSFAS 158
    
    Adjustments
    
    SFAS 158Deferred Tax Assets, non
current
    
    $
    59,250
    
    
    $
    34,570
    
    
    $
    93,820Accrued Pension Liability
    
    
    460,457
    
    
    
    135,569
    
    
    
    596,026Accumulated additional
pension liability
    
    $
    (206,376
    )
    
    $
    22
    
    
    $
    (206,354
    )
    2008
    
    $
    2192009
    
    
    4692010
    
    
    7532011
    
    
    1,0772012
    
    
    1,4462013 to 2017
    
    
    138,026$
    141,990
 F-17




---



##### 



2007
    
    
    2006Changes in benefit obligations:Projected benefit obligation, beginning of year
    
    $
    2,475,952
    
    
    $
    2,062,036Service cost
    
    
    185,494
    
    
    
    170,319Interest cost
    
    
    124,605
    
    
    
    99,773Other
    
    
    21,961
    
    
    
    11,486Actuarial result
    
    
    (465,301
    )
    
    
    278,123Curtailment
    
    
    (98,146
    )
    
    
    Plan amendment
    
    
    (700,319
    )
    
    
    Foreign currency translation
    
    
    226,107
    
    
    
    (145,785
    )Projected benefit obligation, end of year
    
    $
    1,770,353
    
    
    $
    2,475,952Changes in plan assets:Plan assets, beginning of year
    
    $
    1,406,317
    
    
    $
    1,246,402Contributions to plan
    
    
    43,918
    
    
    
    201,184Benefits paid
    
    
    
    
    
    
    Management cost
    
    
    (27,783
    )
    
    
    (23,112
    )Actual return on assets
    
    
    (385,737
    )
    
    
    70,681Foreign currency translation
    
    
    137,613
    
    
    
    (88,838
    )Plan assets, end of year
    
    $
    1,174,328
    
    
    $
    1,406,317
  2007
    
    
    2006Funded status
    
    $
    (596,026
    )
    
    $
    (1,069,635
    )Unrecognized net transition obligation (assets)
    
    
    
    
    
    
    Unrecognized net actuarial loss (gain)
    
    
    755,358
    
    
    
    824,876Unrecognized prior service costs (benefit)
    
    
    (514,413
    )
    
    
    (228,406
    )Net amount recognized
    
    $
    (355,081
    )
    
    $
    (473,165
    )
  2007
    
    
    2006Unrecognized net transition cost
    
    $
    
    
    
    $
    Unrecognized net prior service (benefit)/cost
    
    
    (514,413
    )
    
    
    Unrecognized net (gains)/losses
    
    
    755,359
    
    
    
    228,406Additional Other Comprehensive Income
    
    $
    240,946
    
    
    $
    228,406
 F-18




---



##### 



2007
    
    
    2006Projected benefit obligation
    
    
    1,770,353
    
    
    
    2,475,952Accumulated benefit obligation
    
    
    1,437,953
    
    
    
    1,880,195Fair value of plan assets
    
    
    1,174,328
    
    
    
    1,406,317
  2007
    
    
    2006Gross service cost, net of employee contribution
    
    $
    185,494
    
    
    $
    170,319Interest cost
    
    
    124,605
    
    
    
    99,773Management cost
    
    
    24,375
    
    
    
    23,112Expected return on assets
    
    
    (71,557
    )
    
    
    (57,730
    )Curtailment gain
    
    
    (205,441
    )
    
    
    Amortization
    
    
    42,691
    
    
    
    34,698Net periodic retirement cost
    
    $
    100,167
    
    
    $
    270,172
  2007
    
    
    2006Discount rate
    
    
    4.90-5.30
    %
    
    
    4.25-5.00
    %Expected return on assets
    
    
    4.90-5.00
    %
    
    
    4.00-5.00
    %Expected rate of increase in future compensation:general
    
    
    3
    %
    
    
    3
    %individual
    
    
    0%-3
    %
    
    
    0%-3
    %
   2007
    
    
    2006Income tax provision:Current:U.S. and state
    
    $
    
    
    
    $
    Foreign
    
    
    122,811
    
    
    
    (36,744
    )Deferred:U.S. and state
    
    
    
    
    
    
    Foreign
    
    
    23,525
    
    
    
    (10,129
    )Total income tax expense (benefit)
    
    $
    146,336
    
    
    $
    (46,873
    )
 F-19




---



##### 



2007
    
    
    2006Statutory federal income tax benefit
    
    $
    (1,643,365
    )
    
    $
    (1,560,459
    )Foreign tax
    
    
    (57,766
    )
    
    
    26,822Valuation allowance increase
    
    
    1,363,043
    
    
    
    1,437,790Other
    
    
    484,424
    
    
    
    48,974$
    146,336
    
    
    $
    (46,873
    )
  2007
    
    
    2006Deferred tax assets:Pension liability
    
    $
    106,828
    
    
    $
    93,368Stock option
    
    
    246,959
    
    
    
    Other reserves and accruals
    
    
    105,209
    
    
    
    39,201Deferred profit on intercompany sales
    
    
    202,590
    
    
    
    99,350Net operating loss carryforwards
    
    
    6,515,226
    
    
    
    5,599,3917,176,812
    
    
    
    5,831,310Less valuation allowance
    
    
    (7,082,993
    )
    
    
    (5,719,949
    )$
    93,819
    
    
    $
    111,361
      F-20




---



##### 



United
    
    The
    
    UnitedStates
    
    Netherlands
    
    Kingdom
    
    Eliminations*
    
    ConsolidatedFiscal 2007Sales to customers
    
    $
    2,910,941
    
    
    $
    5,933,773
    
    
    $
    2,089,537
    
    
    $
    (2,623,250
    )
    
    $
    8,311,001Income tax expense
(benefit)
    
    
    
    
    
    
    146,336
    
    
    
    
    
    
    
    
    
    
    
    146,336Net income (loss)
    
    
    (5,161,613
    )
    
    
    362,639
    
    
    
    105,027
    
    
    
    (282,943
    )
    
    
    (4,976,890
    )Long-lived assets
at March 31, 2007
    
    
    986,875
    
    
    
    745,269
    
    
    
    7,698
    
    
    
    
    
    
    
    1,739,842Fiscal 2006Sales to customers
    
    $
    871,151
    
    
    $
    4,830,203
    
    
    $
    1,711,585
    
    
    $
    (1,270,327
    )
    
    $
    6,142,612Income tax benefit
    
    
    
    
    
    
    (46,873
    )
    
    
    
    
    
    
    
    
    
    
    (46,873
    )Net income (loss)
    
    
    (4,572,337
    )
    
    
    (99,012
    )
    
    
    (107,828
    )
    
    
    236,464
    
    
    
    (4,542,713
    )Long-lived assets
at March 31, 2006
    
    
    767,984
    
    
    
    717,692
    
    
    
    5,366
    
    
    
    
    
    
    
    1,491,042
 
 *
    
    Represents intercompany transactions.      F-21