----

|                                                                         |   | Page(s)   |
|------------------------------------------------------------------------------|--------|-----------|
|                                                                         |   |      |
| Reports of Independent Registered Public Accounting Firm                     |   | F-1 - F-2 |
| Consolidated Financial Statements:                                           |   |      |
| Consolidated Balance Sheets                                                  |   | F-3       |
| Consolidated Statements of Operations                                        |   | F-5       |
| Consolidated Statements of Shareholders’ Equity and Comprehensive Loss |   | F-6       |
| Consolidated Statements of Cash Flows                                        |   | F-7       |
| Notes to Consolidated Financial Statements                                   |   | F-8       |

----

----

----

|                                |   | 2011   |       |   | 2010   |   |
|-------------------------------------|--------|--------|------------|--------|--------|--------|
| Assets                              |   |   |       |   |   |   |
|                                |   |   |       |   |   |   |
| Current assets:                     |   |   |       |   |   |   |
| Cash and cash equivalents           |   | $      | 6,063,573  |   |   | $      | 2,311,269 |   |
| Short-term investments              |   |   | 8,020,577  |   |   |   | 3,500,000 |   |
| Accounts receivable, net            |   |   | 2,085,262  |   |   |   | 1,287,440 |   |
| Inventories                         |   |   | 677,960    |   |   |   | 341,497 |   |
| Income tax receivable               |   |   | -          |   |   |   | 23,820 |   |
| Other                               |   |   | 348,100    |   |   |   | 237,321 |   |
| Total current assets                |   |   | 17,195,472 |   |   |   | 7,701,347 |   |
|                                |   |   |       |   |   |   |   |   |
| Property, plant, and equipment, net |   |   | 1,210,542  |   |   |   | 1,230,771 |   |
|                                |   |   |       |   |   |   |   |   |
| Intangible assets, net              |   |   | 1,725,136  |   |   |   | 2,533,095 |   |
|                                |   |   |       |   |   |   |   |   |
| Long-term investments               |   |   | 5,508,701  |   |   |   | - |   |
|                                |   |   |       |   |   |   |   |   |
| Deferred tax assets                 |   |   | 87,031     |   |   |   | 108,530 |   |
|                                |   |   |       |   |   |   |   |   |
| Total assets                        |   | $      | 25,726,882 |   |   | $      | 11,573,743 |   |

----

|                                                                                                                                                        |   | 2011   |        |   | 2010   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Liabilities and Shareholders’ Equity                                                                                                                  |   |   |        |   |   |   |
|                                                                                                                                                        |   |   |        |   |   |   |
| Current liabilities:                                                                                                                                        |   |   |        |   |   |   |
| Accounts payable                                                                                                                                            |   | $      | 658,107     |   |   | $      | 485,594 |   |
| Current portion - deferred rent                                                                                                                             |   |   | 35,000      |   |   |   | 35,000 |   |
| Income tax payable                                                                                                                                          |   |   | 6,901       |   |   |   | 10,000 |   |
| Accrued liabilities:                                                                                                                                        |   |   |        |   |   |   |   |   |
| Compensation                                                                                                                                                |   |   | 1,597,657   |   |   |   | 903,057 |   |
| Other                                                                                                                                                       |   |   | 247,451     |   |   |   | 212,028 |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Total current liabilities                                                                                                                                   |   |   | 2,545,116   |   |   |   | 1,645,679 |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Deferred rent – less current portion                                                                                                                  |   |   | 77,272      |   |   |   | 112,500 |   |
| Accrued pension liability                                                                                                                                   |   |   | 475,845     |   |   |   | 601,037 |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Total liabilities                                                                                                                                           |   |   | 3,098,233   |   |   |   | 2,359,216 |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Commitments and contingencies                                                                                                                               |   |   | -           |   |   |   | - |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Shareholders’ equity:                                                                                                                                 |   |   |        |   |   |   |   |   |
| Common stock $.01 par value; 40,000,000 shares authorized, 20,664,332 and 14,946,540 shares issued and outstanding at March 31, 2011 and 2010 respectively. |   |   | 206,643     |   |   |   | 149,465 |   |
| Additional paid-in capital                                                                                                                                  |   |   | 54,014,368  |   |   |   | 36,178,126 |   |
| Accumulated deficit                                                                                                                                         |   |   | (31,265,464 | )      |   |   | (26,617,161 | ) |
| Accumulated other comprehensive loss                                                                                                                        |   |   | (326,898    | )      |   |   | (495,903 | ) |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Total shareholders’ equity                                                                                                                            |   |   | 22,628,649  |   |   |   | 9,214,527 |   |
|                                                                                                                                                        |   |   |        |   |   |   |   |   |
| Total liabilities and shareholders’ equity                                                                                                            |   | $      | 25,726,882  |   |   | $      | 11,573,743 |   |

----

|                                        |   | 2011   |       |   | 2010   |   |
|---------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                        |   |   |       |   |   |   |
| Net sales                                   |   | $      | 13,787,032 |   |   | $      | 11,863,202 |   |
| Cost of goods sold                          |   |   | 2,386,431  |   |   |   | 2,058,855 |   |
|                                        |   |   |       |   |   |   |   |   |
| Gross profit                                |   |   | 11,400,601 |   |   |   | 9,804,347 |   |
|                                        |   |   |       |   |   |   |   |   |
| Operating expenses                          |   |   |       |   |   |   |   |   |
| General and administrative                  |   |   | 3,442,179  |   |   |   | 2,798,900 |   |
| Research and development                    |   |   | 1,719,532  |   |   |   | 1,785,405 |   |
| Selling and marketing                       |   |   | 10,092,062 |   |   |   | 7,576,776 |   |
| Amortization                                |   |   | 843,602    |   |   |   | 845,553 |   |
|                                        |   |   | 16,097,375 |   |   |   | 13,006,634 |   |
|                                        |   |   |       |   |   |   |   |   |
| Operating loss                              |   |   | (4,696,774 | )      |   |   | (3,202,287 | ) |
|                                        |   |   |       |   |   |   |   |   |
| Other income (expense)                      |   |   |       |   |   |   |   |   |
| Interest income                             |   |   | 72,426     |   |   |   | 92,736 |   |
| Interest expense                            |   |   | (5,067     | )      |   |   | (14,476 | ) |
| Foreign currency exchange loss              |   |   | 10,722     |   |   |   | (37,552 | ) |
| Other, net                                  |   |   | (773       | )      |   |   | (853 | ) |
|                                        |   |   | 77,308     |   |   |   | 39,855 |   |
|                                        |   |   |       |   |   |   |   |   |
| Loss before income taxes                    |   |   | (4,619,466 | )      |   |   | (3,162,432 | ) |
|                                        |   |   |       |   |   |   |   |   |
| Income tax expense                          |   |   | 28,837     |   |   |   | 41,379 |   |
|                                        |   |   |       |   |   |   |   |   |
| Net loss                                    |   | $      | (4,648,303 | )      |   | $      | (3,203,811 | ) |
|                                        |   |   |       |   |   |   |   |   |
|                                        |   |   |       |   |   |   |   |   |
| Basic and diluted loss per common share     |   | $      | (0.25      | )      |   | $      | (0.21 | ) |
|                                        |   |   |       |   |   |   |   |   |
| Weighted average common shares outstanding: |   |   |       |   |   |   |   |   |
| Basic and diluted                           |   |   | 18,874,009 |   |   |   | 14,944,354 |   |

----

|                                                                                                      |   | Common Stock |       |   | AdditionalPaid-in |   |    | Accumulated |   |   | Accumulated OtherComprehensive |   |   | TotalShareholders’ |        |
|-----------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|-------------------|--------|---------|-------------|--------|--------|--------------------------------|--------|--------|--------------------------|-------------|
|                                                                                                      |   | Shares       |       |   | Amount            |   |    | Capital     |   |   |  Deficit                  |   |   | Income (loss)            |        |   | Equity |   |
| Balance at March 31, 2009                                                                                 |   |         | 14,946,540 |   |              | $      | 149,465 |        |   | $      | 35,763,619                     |   |   | $                        | (23,413,350 | ) |   | $ | (191,157 | ) |   | $ | 12,308,577 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Share-based compensation expense                                                                          |   |         | -          |   |              |   | -       |        |   |   | 414,507                        |   |   |                     | -           |   |   |   | - |   |   |   | 414,507 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                                                                        |   |         | -          |   |              |   | -       |        |   |   | -                              |   |   |                     | (3,203,811  | ) |   |   | (304,746 | ) |   |   | (3,508,557 | ) |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Balance at March 31, 2010                                                                                 |   |         | 14,946,540 |   |              |   | 149,465 |        |   |   | 36,178,126                     |   |   |                     | (26,617,161 | ) |   |   | (495,903 | ) |   |   | 9,214,527 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Proceeds from public offering, net of costs of $1,182,941                                                 |   |         | 4,600,000  |   |              |   | 46,000  |        |   |   | 14,871,059                     |   |   |                     | -           |   |   |   | - |   |   |   | 14,917,059 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Share-based consulting and compensation expense                                                           |   |         | 72,900     |   |              |   | 729     |        |   |   | 433,425                        |   |   |                     | -           |   |   |   | - |   |   |   | 434,154 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Proceeds from exercise of warrants, net of costs of $3,668                                                |   |         | 886,000    |   |              |   | 8,860   |        |   |   | 2,190,322                      |   |   |                     | -           |   |   |   | - |   |   |   | 2,199,182 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Proceeds from exercise of stock options, net of 1,608 shares returned for payment of related income taxes |   |         | 158,892    |   |              |   | 1,589   |        |   |   | 341,436                        |   |   |                     | -           |   |   |   | - |   |   |   | 343,025 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                                                                        |   |         | -          |   |              |   | -       |        |   |   | -                              |   |   |                     | (4,648,303  | ) |   |   | 169,005 |   |   |   | (4,479,298 | ) |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |
| Balance at March 31, 2011                                                                                 |   |         | 20,664,332 |   |              | $      | 206,643 |        |   | $      | 54,014,368                     |   |   | $                        | (31,265,464 | ) |   | $ | (326,898 | ) |   | $ | 22,628,649 |   |
|                                                                                                      |   |         |       |   |              |   |    |        |   |   |                           |   |   |                     |        |   |   |   |   |   |   |   |   |   |

----

|                                                              |   | 2011   |        |   | 2010   |   |
|-------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Cash flows from operating activities:                             |   |   |        |   |   |   |
| Net loss                                                          |   | $      | (4,648,303  | )      |   | $      | (3,203,811 | ) |
| Adjustments to reconcile net loss to net cash used in operations: |   |   |        |   |   |   |   |   |
| Depreciation and amortization                                     |   |   | 1,119,227   |   |   |   | 1,138,077 |   |
| Loss  on disposal of equipment                          |   |   | 5,358       |   |   |   | 853 |   |
| Amortization of premium on marketable securities                  |   |   | 18,910      |   |   |   | - |   |
| Share-based consulting expense                                    |   |   | 11,261      |   |   |   | - |   |
| Share-based compensation expense                                  |   |   | 422,893     |   |   |   | 414,507 |   |
| Deferred income taxes                                             |   |   | 26,192      |   |   |   | (39,741 | ) |
| Deferred rent                                                     |   |   | (35,228     | )      |   |   | (35,076 | ) |
| Changes in operating assets and liabilities:                      |   |   |        |   |   |   |   |   |
| Accounts receivable                                               |   |   | (752,970    | )      |   |   | (56,052 | ) |
| Inventories                                                       |   |   | (328,754    | )      |   |   | 172,723 |   |
| Other current assets and income tax receivable                    |   |   | (85,529     | )      |   |   | (42,827 | ) |
| Accounts payable                                                  |   |   | 170,326     |   |   |   | (127,355 | ) |
| Accrued liabilities                                               |   |   | 705,474     |   |   |   | (152,700 | ) |
| Accrued pension liability, net                                    |   |   | (5,322      | )      |   |   | 39,159 |   |
| Net cash used in operating activities                             |   |   | (3,376,465  | )      |   |   | (1,892,243 | ) |
|                                                              |   |   |        |   |   |   |   |   |
| Cash flows from investing activities:                             |   |   |        |   |   |   |   |   |
| Proceeds from maturity of marketable securities                   |   |   | 7,261,568   |   |   |   | 5,500,000 |   |
| Purchases of marketable securities                                |   |   | (17,318,915 | )      |   |   | (4,500,000 | ) |
| Purchases of property, plant and equipment                        |   |   | (229,131    | )      |   |   | (111,154 | ) |
| Proceeds from sales of equipment                                  |   |   | -           |   |   |   | 2,800 |   |
| Payments for intangible assets                                    |   |   | (35,643     | )      |   |   | - |   |
| Net cash (used in) provided by  investing activities    |   |   | (10,322,121 | )      |   |   | 891,646 |   |
|                                                              |   |   |        |   |   |   |   |   |
| Cash flows from financing activities:                             |   |   |        |   |   |   |   |   |
| Net proceeds from public offering of common stock                 |   |   | 14,917,059  |   |   |   | - |   |
| Net proceeds from exercise of  warrants and options     |   |   | 2,542,207   |   |   |   | - |   |
| Net cash provided by financing activities                         |   |   | 17,459,266  |   |   |   | - |   |
|                                                              |   |   |        |   |   |   |   |   |
| Effect of exchange rates on cash and cash equivalents             |   |   | (8,376      | )      |   |   | 35,567 |   |
|                                                              |   |   |        |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents              |   |   | 3,752,304   |   |   |   | (965,030 | ) |
|                                                              |   |   |        |   |   |   |   |   |
| Cash and cash equivalents at beginning of year                    |   |   | 2,311,269   |   |   |   | 3,276,299 |   |
|                                                              |   |   |        |   |   |   |   |   |
| Cash and cash equivalents at end of year                          |   | $      | 6,063,573   |   |   | $      | 2,311,269 |   |
|                                                              |   |   |        |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                 |   |   |        |   |   |   |   |   |
| Cash paid during the year for interest                            |   | $      | 17          |   |   | $      | 7,697 |   |
| Cash paid during the year for income tax                          |   |   | 17,549      |   |   |   | 135,032 |   |

----

| 1. | Summary of Significant Accounting Policies |
|----|--------------------------------------------|

|   | · | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | · | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Level 3: Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.  These values are generally determined using pricing models for which the assumptions utilize management's estimates of market participant assumptions. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Asset Class                                 |   | Fair Value |      |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|---------------------------------------------|--------|------------|-----------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|
|                                        |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |
| 2011                                        |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |
| Short-term investments:                     |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |
| U.S. Government and Agency debt securities  |   | $          | 4,520,000 |   |                                                          | $      | -      |                                         |   | $      | 4,520,000                                |   |   | $ | - |   |
| Long-term investments:                      |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| U.S. Government and Agency debt securities  |   |       | 5,509,000 |   |                                                          |   | -      |                                         |   |   | 5,509,000                                |   |   |   | - |   |
| Pension plan assets (See Note 5):           |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| Other Contract (Netherlands Plan)           |   |       | 1,041,000 |   |                                                          |   | -      |                                         |   |   | -                                        |   |   |   | 1,041,000 |   |
| Deposit Administration Contract (U.K. Plan) |   |       | 562,000   |   |                                                          |   | -      |                                         |   |   | 562,000                                  |   |   |   |   |   |
|                                        |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| 2010                                        |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| Pension plan assets (See Note 5):           |   |       |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| Other Contract (Netherlands Plan)           |   |       | 1,252,000 |   |                                                          |   | -      |                                         |   |   | -                                        |   |   |   | 1,252,000 |   |
| Deposit Administration Contract (U.K. Plan) |   |       | 477,000   |   |                                                          |   | -      |                                         |   |   | 477,000                                  |   |   |   | - |   |

|                                                                                  |   | Other Contract (Netherlands Pension Plan Assets) |      |
|---------------------------------------------------------------------------------------|--------|--------------------------------------------------|-----------|
|                                                                                  |   |                                             |      |
| Beginning balance as at April 1, 2010                                                 |   | $                                                | 1,252,000 |   |
| Unrealized gain recognized in earnings                                                |   |                                             | 12,000    |   |
| Unrealized actuarial loss recognized in other comprehensive loss                      |   |                                             | (401,000  | ) |
| Purchases                                                                             |   |                                             | 135,000   |   |
| Unrealized foreign currency translation gain recognized in other comprehensive income |   |                                             | 43,000    |   |
|                                                                                  |   |                                             |      |   |
| Ending balance as at March 31, 2011                                                   |   | $                                                | 1,041,000 |   |

----

|                                       |   | Amortized Cost |       |   | Unrealized Gains |   |   | Unrealized Losses |   |   | Fair Value |   |
|--------------------------------------------|--------|----------------|------------|--------|------------------|--------|--------|-------------------|--------|--------|------------|--------|
|                                       |   |           |       |   |             |   |   |              |   |   |       |   |
| Short-term investments:                    |   |           |       |   |             |   |   |              |   |   |       |   |
| U.S. Government and Agency debt securities |   | $              | 4,520,000  |   |             | $      | 1,000  |              |   | $      | -          |   |   | $ | 4,521,000 |   |
| Long-term investments:                     |   |           |       |   |             |   |   |              |   |   |       |   |   |   |   |   |
| U.S. Government and Agency debt securities |   |           | 5,518,000  |   |             |   | -      |              |   |   | 10,000     |   |   |   | 5,508,000 |   |
|                                       |   |           |       |   |             |   |   |              |   |   |       |   |   |   |   |   |
| Total                                      |   | $              | 10,038,000 |   |             | $      | 1,000  |              |   | $      | 10,000     |   |   | $ | 10,029,000 |   |

----

|            |   | 2011   |    |   | 2010   |   |
|-----------------|--------|--------|---------|--------|--------|--------|
|            |   |   |    |   |   |   |
| Raw materials   |   | $      | 233,000 |   |   | $      | 159,000 |   |
| Work-in-process |   |   | 9,000   |   |   |   | 29,000 |   |
| Finished goods  |   |   | 436,000 |   |   |   | 154,000 |   |
|            |   |   |    |   |   |   |   |   |
|            |   | $      | 678,000 |   |   | $      | 342,000 |   |

|                          |   | 2011   |       |   | 2010   |   |
|-------------------------------|--------|--------|------------|--------|--------|--------|
|                          |   |   |       |   |   |   |
| Land                          |   | $      | 173,000    |   |   | $      | 165,000 |   |
| Building                      |   |   | 788,000    |   |   |   | 752,000 |   |
| Leasehold improvements        |   |   | 351,000    |   |   |   | 345,000 |   |
| Internal use software         |   |   | 359,000    |   |   |   | 308,000 |   |
| Equipment                     |   |   | 1,296,000  |   |   |   | 1,198,000 |   |
|                          |   |   | 2,967,000  |   |   |   | 2,768,000 |   |
|                          |   |   |       |   |   |   |   |   |
| Less accumulated depreciation |   |   | (1,756,000 | )      |   |   | (1,537,000 | ) |
|                          |   |   |       |   |   |   |   |   |
|                          |   | $      | 1,211,000  |   |   | $      | 1,231,000 |   |

|           |   | Gross Carrying Amount |      |   | Accumulated Amortization |   |      | Net value |   |
|----------------|--------|-----------------------|-----------|--------|--------------------------|--------|-----------|-----------|--------|
|           |   |                  |      |   |                     |   |      |      |   |
| March 31, 2011 |   | $                     | 5,508,000 |   |                     | $      | 3,783,000 |      |   | $ | 1,725,000 |   |
| March 31, 2010 |   |                  | 5,473,000 |   |                     |   | 2,940,000 |      |   |   | 2,533,000 |   |

----

| 2012            |   | $      | 848,000   |   |
|-----------------|--------|--------|-----------|--------|
| 2013            |   |   | 848,000   |   |
| 2014            |   |   | 11,000    |   |
| 2015            |   |   | 8,000     |   |
| 2016 and beyond |   |   | 10,000    |   |
|            |   |   |      |   |
|            |   | $      | 1,725,000 |   |

----

|           |   | Number ofOptions/Warrants |      |   | Range ofexercise prices |   |
|----------------|--------|---------------------------|-----------|--------|-------------------------|--------|
| Years ended:   |   |                      |      |   |                    |   |
| March 31, 2011 |   |                      | 2,121,000 |   |                    | $      | 0.71 - $6.61 |   |
| March 31, 2010 |   |                      | 4,104,000 |   |                    | $      | 0.71 - $5.19 |   |

| 2. | Notes Payable |
|----|---------------|

| 3. | Shareholders’ Equity |
|----|----------------------------|

----

|                    |   | 2011   |   |   | 2010   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|
| Expected life, in years |   |   | 5.25   |   |   |   | 4.82 |   |
| Risk-free interest rate |   |   | 1.76   | %      |   |   | 2.74 | % |
| Expected volatility     |   |   | 91.13  | %      |   |   | 94.21 | % |
| Expected dividend yield |   |   | 0      | %      |   |   | 0 | % |

|                                  |   |  Number of shares |      |   | Weighted average exercise price |   |   | Weighted average grant date fair value |   |   | Aggregate intrinsic value |   |   | Weighted average remaining life in years |      |
|---------------------------------------|--------|------------------------|-----------|--------|---------------------------------|--------|--------|----------------------------------------|--------|--------|---------------------------|--------|--------|------------------------------------------|-----------|
|                                  |   |                   |      |   |                            |   |   |                                   |   |   |                      |   |   |                                     |      |
| Balance at March 31, 2009             |   |                   | 2,135,000 |   |                            |   |   |                                   |   |   |                      |   |   |                                     |      |   |
| Options granted                       |   |                   | 383,000   |   |                            |   |   |                                   | $      | 0.60   |                      |   |   |                                     |      |   |   |
| Options surrendered                   |   |                   | (480,000  | )      |                            |   |   |                                   |   |   |                      |   |   |                                     |      |   |   |
|                                  |   |                   |      |   |                            |   |   |                                   |   |   |                      |   |   |                                     |      |   |   |
| Balance at March 31, 2010             |   |                   | 2,038,000 |   |                            | $      | 3.14   |                                   |   |   |                      |   |   |                                     |      |   |   |   |
| Options granted                       |   |                   | 229,000   |   |                            |   | 4.96   |                                   |   |   | 3.49                      |   |   |                                     |      |   |   |   |
| Options exercised                     |   |                   | (161,000  | )      |                            |   | 2.19   |                                   |   |   |                      |   |   | $                                        | 502,000   |   |   |   |   |
| Options surrendered                   |   |                   | (40,000   | )      |                            |   | 4.02   |                                   |   |   |                      |   |   |                                     |      |   |   |   |   |
|                                  |   |                   |      |   |                            |   |   |                                   |   |   |                      |   |   |                                     |      |   |   |   |   |
| Balance at March 31, 2011             |   |                   | 2,066,000 |   |                            | $      | 3.39   |                                   |   |   |                      |   |   | $                                        | 6,643,000 |   |   |   | 3.64 |   |
|                                  |   |                   |      |   |                            |   |   |                                   |   |   |                      |   |   |                                     |      |   |   |   |   |   |
| Options exercisable at March 31, 2011 |   |                   | 1,740,000 |   |                            | $      | 3.34   |                                   |   |   |                      |   |   | $                                        | 5,689,000 |   |   |   | 3.32 |   |

----

|                      |   |  Number of Shares |    |   | Weighted average grant date fair value |   |   | Aggregate intrinsic value |   |
|---------------------------|--------|------------------------|---------|--------|----------------------------------------|--------|--------|---------------------------|--------|
|                      |   |                   |    |   |                                   |   |   |                      |   |
| Balance at March 31, 2009 |   |                   | 14,000  |   |                                   |   |   |                      |   |   |
| Shares vested             |   |                   | (14,000 | )      |                                   |   |   |                      | $      | 44,000 |   |
|                      |   |                   |    |   |                                   |   |   |                      |   |   |   |
| Balance at March 31, 2010 |   |                   | -       |   |                                   | $      | -      |                      |   |   |   |   |
| Shares granted            |   |                   | 73,000  |   |                                   |   | 4.76   |                      |   |   |   |   |
| Shares vested             |   |                   | (18,000 | )      |                                   |   | 4.16   |                      |   |   | 75,000 |   |
|                      |   |                   |    |   |                                   |   |   |                      |   |   |   |   |
| Balance at March 31, 2011 |   |                   | 55,000  |   |                                   | $      | 4.96   |                      |   | $ | 272,000 |   |

|                                   |   | Number of shares |       |   | Weighted average exercise price |   |
|----------------------------------------|--------|------------------|------------|--------|---------------------------------|--------|
|                                   |   |             |       |   |                            |   |
| Outstanding at March 31, 2009 and 2010 |   |             | 2,067,000  |   |                            | $      | 3.78 |   |
| Warrants expired                       |   |             | (1,181,000 | )      |                            |   | 4.75 |   |
| Warrants exercised                     |   |             | (886,000   | )      |                            |   | 2.49 |   |
|                                   |   |             |       |   |                            |   |   |   |
| Outstanding at March 31, 2011          |   |             | -          |   |                            |   |   |   |

|                                                         |   | 2011   |       |   | 2010   |   |
|--------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                         |   |   |       |   |   |   |
| Net loss                                                     |   | $      | (4,648,000 | )      |   | $      | (3,204,000 | ) |
| Items of other comprehensive income (loss):                  |   |   |       |   |   |   |   |   |
| Translation adjustment                                       |   |   | 58,000     |   |   |   | 25,000 |   |
| Unrealized loss on available for sale  investments |   |   | (9,000     | )      |   |   | - |   |
| Pension related                                              |   |   | 120,000    |   |   |   | (330,000 | ) |
|                                                         |   |   |       |   |   |   |   |   |
| Comprehensive loss                                           |   | $      | (4,479,000 | )      |   | $      | (3,509,000 | ) |

----

| 4. | Commitments and Contingencies |
|----|-------------------------------|

| 2012   |   | $      | 179,000 |   |
|--------|--------|--------|---------|--------|
| 2013   |   |   | 160,000 |   |
| 2014   |   |   | 155,000 |   |
| 2015   |   |   | 13,000  |   |
|   |   |   |    |   |
|   |   | $      | 507,000 |   |

| 5. | Savings and Retirement Plans |
|----|------------------------------|

----

| 2012         |   | $      | -       |   |
|--------------|--------|--------|---------|--------|
| 2013         |   |   | -       |   |
| 2014         |   |   | 1,000   |   |
| 2015         |   |   | 5,000   |   |
| 2016         |   |   | 24,000  |   |
| 2017 to 2021 |   |   | 143,000 |   |
|         |   | $      | 173,000 |   |

|                                            |   | 2011   |      |   | 2010   |   |
|-------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Changes in benefit obligations:                 |   |   |      |   |   |   |
| Projected benefit obligation, beginning of year |   | $      | 1,753,000 |   |   | $      | 959,000 |   |
| Service cost                                    |   |   | 95,000    |   |   |   | 60,000 |   |
| Interest cost                                   |   |   | 81,000    |   |   |   | 68,000 |   |
| Actuarial result                                |   |   | (560,000  | )      |   |   | 686,000 |   |
| Foreign currency translation                    |   |   | 58,000    |   |   |   | (20,000 | ) |
|                                            |   |   |      |   |   |   |   |   |
| Projected benefit obligation, end of year       |   | $      | 1,427,000 |   |   | $      | 1,753,000 |   |
|   Changes in plan assets:             |   |   |      |   |   |   |   |   |
| Plan assets, beginning of year                  |   | $      | 1,252,000 |   |   | $      | 663,000 |   |
| Contributions to plan                           |   |   | 135,000   |   |   |   | 129,000 |   |
| Management cost                                 |   |   | (12,000   | )      |   |   | (16,000 | ) |
| Actual return on assets                         |   |   | (377,000  | )      |   |   | 492,000 |   |
| Foreign currency translation                    |   |   | 43,000    |   |   |   | (16,000 | ) |
|                                            |   |   |      |   |   |   |   |   |
| Plan assets, end of year                        |   | $      | 1,041,000 |   |   | $      | 1,252,000 |   |

----

|                                                            |   | 2011   |     |   | 2010   |   |
|-----------------------------------------------------------------|--------|--------|----------|--------|--------|--------|
|                                                            |   |   |     |   |   |   |
| Unrecognized net prior service benefit                          |   | $      | (410,000 | )      |   | $      | (424,000 | ) |
| Unrecognized net losses                                         |   |   | 501,000  |   |   |   | 676,000 |   |
|                                                            |   |   |     |   |   |   |   |   |
| Additional Other Comprehensive Income (gross of deferred taxes) |   | $      | 91,000   |   |   | $      | 252,000 |   |

|                           |   | 2011   |      |   | 2010   |   |
|--------------------------------|--------|--------|-----------|--------|--------|--------|
|                           |   |   |      |   |   |   |
| Projected benefit obligation   |   | $      | 1,427,000 |   |   | $      | 1,753,000 |   |
| Accumulated benefit obligation |   |   | 1,075,000 |   |   |   | 1,297,000 |   |
| Fair value of plan assets      |   |   | 1,041,000 |   |   |   | 1,252,000 |   |

|                                             |   | 2011   |    |   | 2010   |   |
|--------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                             |   |   |    |   |   |   |
| Gross service cost, net of employee contribution |   | $      | 80,000  |   |   | $      | 45,000 |   |
| Interest cost                                    |   |   | 81,000  |   |   |   | 67,000 |   |
| Management cost                                  |   |   | 12,000  |   |   |   | 16,000 |   |
| Expected return on assets                        |   |   | (24,000 | )      |   |   | 29,000 |   |
| Amortization                                     |   |   | 5,000   |   |   |   | - |   |
|                                             |   |   |    |   |   |   |   |   |
| Net periodic retirement cost                     |   | $      | 154,000 |   |   | $      | 157,000 |   |

|                                              |   | 2011   |   |   | 2010   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |
| Discount rate                                     |   |   | 6.20   | %      |   |   | 4.70 | % |
| Expected return on assets                         |   |   | 6.20   | %      |   |   | 4.70 | % |
| Expected rate of increase in future compensation: |   |   |   |   |   |   |   |   |
| General                                           |   |   | 3      | %      |   |   | 3 | % |
| Individual                                        |   |   | 0-3    | %      |   |   | 0-3 | % |

----

| 2012         |   | $      | -       |   |
|--------------|--------|--------|---------|--------|
| 2013         |   |   | -       |   |
| 2014         |   |   | -       |   |
| 2015         |   |   | -       |   |
| 2016         |   |   | -       |   |
| 2017 to 2021 |   |   | 191,000 |   |
|         |   | $      | 191,000 |   |

|                                            |   | 2011   |    |   | 2010   |   |
|-------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Changes in benefit obligations:                 |   |   |    |   |   |   |
| Projected benefit obligation, beginning of year |   | $      | 577,000 |   |   | $      | 335,000 |   |
| Service cost                                    |   |   | 3,000   |   |   |   | 3,000 |   |
| Interest cost                                   |   |   | 33,000  |   |   |   | 25,000 |   |
| Other                                           |   |   | (5,000  | )      |   |   | (5,000 | ) |
| Actuarial result                                |   |   | 6,000   |   |   |   | 212,000 |   |
| Foreign currency translation                    |   |   | 38,000  |   |   |   | 7,000 |   |
|                                            |   |   |    |   |   |   |   |   |
| Projected benefit obligation, end of year       |   | $      | 652,000 |   |   | $      | 577,000 |   |
|                                            |   |   |    |   |   |   |   |   |
| Changes in plan assets:                         |   |   |    |   |   |   |   |   |
| Plan assets, beginning of year                  |   | $      | 477,000 |   |   | $      | 401,000 |   |
| Contributions to plan                           |   |   | 36,000  |   |   |   | 39,000 |   |
| Management cost                                 |   |   | (5,000  | )      |   |   | (5,000 | ) |
| Actual return on assets                         |   |   | 22,000  |   |   |   | 20,000 |   |
| Foreign currency translation                    |   |   | 32,000  |   |   |   | 22,000 |   |
|                                            |   |   |    |   |   |   |   |   |
| Plan assets, end of year                        |   | $      | 562,000 |   |   | $      | 477,000 |   |

|                    |   | 2011   |    |   | 2010   |   |
|-------------------------|--------|--------|---------|--------|--------|--------|
|                    |   |   |    |   |   |   |
| Unrecognized net losses |   | $      | 185,000 |   |   | $      | 176,000 |   |

|                           |   | 2011   |    |   | 2010   |   |
|--------------------------------|--------|--------|---------|--------|--------|--------|
|                           |   |   |    |   |   |   |
| Projected benefit obligation   |   | $      | 652,000 |   |   | $      | 577,000 |   |
| Accumulated benefit obligation |   |   | 652,000 |   |   |   | 577,000 |   |
| Fair value of plan assets      |   |   | 562,000 |   |   |   | 477,000 |   |

----

|                                             |   | 2011   |    |   | 2010   |   |
|--------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                             |   |   |    |   |   |   |
| Gross service cost, net of employee contribution |   | $      | 3,000   |   |   | $      | 3,000 |   |
| Interest cost                                    |   |   | 33,000  |   |   |   | 25,000 |   |
| Expected return on assets                        |   |   | (26,000 | )      |   |   | (23,000 | ) |
| Amortization                                     |   |   | 12,000  |   |   |   | - |   |
|                                             |   |   |    |   |   |   |   |   |
| Net periodic retirement cost                     |   | $      | 22,000  |   |   | $      | 5,000 |   |

|                      |   | 2011   |   |   | 2010   |   |
|---------------------------|--------|--------|--------|--------|--------|--------|
|                      |   |   |   |   |   |   |
| Discount rate             |   |   | 5.50   | %      |   |   | 5.50 | % |
| Expected return on assets |   |   | 5.00   | %      |   |   | 5.00 | % |

|                                        |   | 2011              |   |   | 2010              |   |
|---------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                        |   | Target Allocation |   |   | Actual Allocation |   |   | Target Allocation |   |   | Actual Allocation |   |
|                                        |   |              |   |   |              |   |   |   |   |   |   |   |
| Other Contract (Netherlands Plan)           |   |              | 100    | %      |              |   | 100 | % |   |   | 100 | % |   |   | 100 | % |
| Deposit Administration Contract (U.K. Plan) |   |              | 100    | %      |              |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

----

| Asset Class                                 |   | Total  |      |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |   | Significant Observable Inputs (Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|---------------------------------------------|--------|--------|-----------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|
|                                        |   |   |      |   |                                                          |   |   |                                         |   |   |                                     |   |
| 2011                                        |   |   |      |   |                                                          |   |   |                                         |   |   |                                     |   |
| Other Contract (Netherlands Plan)           |   | $      | 1,041,000 |   |                                                          | $      | -      |                                         |   | $      | -                                        |   |   | $ | 1,041,000 |   |
| Deposit Administration Contract (U.K. Plan) |   |   | 562,000   |   |                                                          |   | -      |                                         |   |   | 562,000                                  |   |   |   | - |   |
|                                        |   |   |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| 2010                                        |   |   |      |   |                                                          |   |   |                                         |   |   |                                     |   |   |   |   |   |
| Other Contract (Netherlands Plan)           |   |   | 1,252,000 |   |                                                          |   | -      |                                         |   |   | -                                        |   |   |   | 1,252,000 |   |
| Deposit Administration Contract (U.K. Plan) |   |   | 477,000   |   |                                                          |   | -      |                                         |   |   | 477,000                                  |   |   |   | - |   |

|                                                                                  |   | Other Contract (Netherlands Pension Plan Assets) |      |
|---------------------------------------------------------------------------------------|--------|--------------------------------------------------|-----------|
|                                                                                  |   |                                             |      |
| Beginning balance as at April 1, 2010                                                 |   | $                                                | 1,252,000 |   |
| Unrealized gain recognized in earnings                                                |   |                                             | 12,000    |   |
| Unrealized actuarial loss recognized in other comprehensive loss                      |   |                                             | (401,000  | ) |
| Purchases                                                                             |   |                                             | 135,000   |   |
| Unrealized foreign currency translation gain recognized in other comprehensive income |   |                                             | 43,000    |   |
|                                                                                  |   |                                             |      |   |
| Ending balance as at March 31, 2011                                                   |   | $                                                | 1,041,000 |   |

| 6. | Income Taxes |
|----|--------------|

|                     |   | 2011   |   |   | 2010   |   |
|--------------------------|--------|--------|--------|--------|--------|--------|
| Income tax provision:    |   |   |   |   |   |   |
| Current:                 |   |   |   |   |   |   |
| U.S. and State           |   | $      | 3,000  |   |   | $      | 24,000 |   |
| Foreign                  |   |   | 33,000 |   |   |   | 24,000 |   |
| Deferred:                |   |   |   |   |   |   |   |   |
| Foreign                  |   |   | (7,000 | )      |   |   | (7,000 | ) |
|                     |   |   |   |   |   |   |   |   |
| Total income tax expense |   | $      | 29,000 |   |   | $      | 41,000 |   |

----

|                                      |   | 2011   |       |   | 2010   |   |
|-------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                      |   |   |       |   |   |   |
| Statutory federal income tax benefit      |   | $      | (1,571,000 | )      |   | $      | (1,140,000 | ) |
| State tax benefit, net of federal taxes   |   |   | (113,000   | )      |   |   | (88,000 | ) |
| Foreign tax                               |   |   | (25,000    | )      |   |   | (23,000 | ) |
| Nondeductible expenses                    |   |   | 50,000     |   |   |   | - |   |
| Subpart F Income                          |   |   | 43,000     |   |   |   | - |   |
| Undistributed foreign earnings            |   |   | 137,000    |   |   |   | - |   |
| Foreign tax credits                       |   |   | (33,000    | )      |   |   | - |   |
| Valuation allowance increase              |   |   | 985,000    |   |   |   | 1,209,000 |   |
| Expiration and adjustments of NOL’s |   |   | 757,000    |   |   |   | - |   |
| Other                                     |   |   | (201,000   | )      |   |   | 83,000 |   |
|                                      |   |   |       |   |   |   |   |   |
| Total income tax expense                  |   | $      | 29,000     |   |   | $      | 41,000 |   |

|                               |   | 2011   |        |   | 2010   |   |
|------------------------------------|--------|--------|-------------|--------|--------|--------|
| Deferred tax assets (liabilities): |   |   |        |   |   |   |
| Depreciation                       |   | $      | (70,000     | )      |   | $      | (211,000 | ) |
| Amortization                       |   |   | (468,000    | )      |   |   | (923,000 | ) |
| Pension liability                  |   |   | 104,000     |   |   |   | 95,000 |   |
| Stock based compensation           |   |   | 934,000     |   |   |   | 966,000 |   |
| Other reserves and accruals        |   |   | 161,000     |   |   |   | 310,000 |   |
| Undistributed foreign earnings     |   |   | (293,000    | )      |   |   | - |   |
| Foreign tax credits                |   |   | 148,000     |   |   |   | - |   |
|  Net operating losses         |   |   | 9,911,000   |   |   |   | 9,227,000 |   |
|                               |   |   |        |   |   |   |   |   |
|                               |   |   | 10,427,000  |   |   |   | 9,464,000 |   |
|                               |   |   |        |   |   |   |   |   |
| Less valuation allowance           |   |   | (10,340,000 | )      |   |   | (9,355,000 | ) |
|                               |   |   |        |   |   |   |   |   |
|                               |   | $      | 87,000      |   |   | $      | 109,000 |   |

----

| 7. | Business Segment Information |
|----|------------------------------|

|   |   | UnitedStates |      |   | United Kingdom |   |      | All Other ForeignCountries (1) |   |   | Consolidated |   |
|--------|--------|--------------|-----------|--------|----------------|--------|-----------|--------------------------------|--------|--------|--------------|--------|
|   |   |         |      |   |           |   |      |                           |   |   |         |   |
| 2011   |   | $            | 7,908,000 |   |           | $      | 1,481,000 |                           |   | $      | 4,398,000    |   |   | $ | 13,787,000 |   |
|   |   |         |      |   |           |   |      |                           |   |   |         |   |   |   |   |   |
| 2010   |   |         | 6,056,000 |   |           |   | 1,578,000 |                           |   |   | 4,229,000    |   |   |   | 11,863,000 |   |
|   |   |         |      |   |           |   |      |                           |   |   |         |   |   |   |   |   |

|       |   | UnitedStates |    |   | United Kingdom |   |   | The Netherlands |   |   | Consolidated |   |
|------------|--------|--------------|---------|--------|----------------|--------|--------|-----------------|--------|--------|--------------|--------|
|       |   |         |    |   |           |   |   |            |   |   |         |   |
|  2011 |   | $            | 506,000 |   |           | $      | 2,000  |            |   | $      | 702,000      |   |   | $ | 1,210,000 |   |
|       |   |         |    |   |           |   |   |            |   |   |         |   |   |   |   |   |
|  2010 |   |         | 541,000 |   |           |   | 3,000  |            |   |   | 687,000      |   |   |   | 1,231,000 |   |

----