In this report and, from time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Company may make "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 concerning possible or anticipated future financial performance, business activities, plans, pending claims, investigations or litigation which are typically preceded by the words "believes", "expects", "anticipates", "intends" or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that such forward looking statements are subject to risks and uncertainties which could cause actual performance, activities, anticipated results, outcomes or plans to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: lower sales to major telephone companies and other major customers; the introduction of competitive products and technologies; our ability to successfully reduce operating expenses at certain business units; the general health of the telecom sector, successful integration and profitability of acquisitions; delays in new product introductions; higher than expected expense related to new sales and marketing initiatives; unfavorable resolution of claims and litigation, availability of adequate supplies of raw materials and components; fuel prices; government funding of education technology spending; and other factors discussed from time to time in the Company's filings with the Securities and Exchange Commission, including risk factors presented under Item 1A of the Company's most recently filed report on Form 10-K.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Consolidated sales decreased in 2009 to $26,765,000 compared to $30,321,000 in 2008. Consolidated operating income in 2009 increased to $1,777,000 compared to $199,000 in the first quarter of 2008, which includes impairment charges totaling $3,221,000 related to JDL Technologies not being selected as a vendor to provide services to the U.S. Virgin Islands Department of Education ("VIDE") for the period from July 1, 2008 to June 30, 2009.

Net income in 2009 increased to $1,223,000 compared to $186,000 in the first quarter of 2008.

Suttle

Suttle sales decreased 5% in the first quarter of 2009 to $11,850,000 compared
to $12,448,000 in the same period of 2008 due to a general slow down in the
housing market. Sales by customer groups in the first quarter of 2009 and 2008
were:


                              Suttle Sales by Customer Group
                                  2009               2008
Major telephone companies   $       6,956,000    $   6,017,000
Distributors/OEM                    3,217,000        4,081,000
International                         629,000          707,000
Other                               1,048,000        1,643,000
                            $      11,850,000    $  12,448,000

Suttle's sales by product groups in first quarter of 2009 and 2008 were:

                                Suttle Sales by Product Group
                                    2009              2008
Modular connecting products   $      4,557,000    $   5,978,000
DSL products                         3,632,000        2,338,000
Structured cabling products          3,491,000        3,770,000
Other products                         170,000          362,000
                              $     11,850,000    $  12,448,000

Sales to the major telephone companies (RBOCs) increased 16% in 2009 due to increased sales of DSL products. Sales to these customers accounted for 59% of Suttle's sales in the 2009 first quarter compared to 48% of sales in 2008. Sales to distributors, original equipment manufacturers (OEMs), and electrical contractors decreased 21% in 2009 primarily due to the contraction of the housing and building sectors of the economy. This customer segment accounted for 27% and 33% of sales in the first quarters of 2009 and 2008, respectively. International sales decreased 11% and accounted for 5% of Suttle's first quarter 2009 sales. Suttle's products do not have a large international market due to different product specifications in non-US markets. Sales to other customers decreased 36% to $1,048,000.

Modular connecting products sales have decreased 24% due to a slowing of the home building business and accelerated decline in the voice market, whereas DSL products have increased 55% as a result of a new contract with a major telephone company.

Suttle's gross margin decreased 20% in the first quarter of 2009 to $2,780,000 compared to $3,487,000 in the same period of 2008. Gross margin percentage decreased to 23% in 2009 from 28% in 2008 due to product mix changes and lower overhead absorption. Suttle realizes its highest selling margins on modular connecting products. DSL products are the least profitable. Suttle also earns better margins on sales to distributor and OEM customers where pricing is usually based on Company list prices than from major telephone customers where pricing is usually based on negotiated contracts. Selling, general and administrative expenses decreased $107,000 or 6% in the first quarter of 2009 compared to the same period in 2008, but remained consistent as a percentage of sales at 13%. Suttle's operating income was $1,214,000 in the first quarter of 2009 compared to operating income of $1,814,000 in 2008.

Transition Networks

Transition Networks sales decreased 7% to $12,137,000 in the first quarter of
2009 compared to $13,049,000 in 2008.

First quarter sales by region are presented in the following table:


                               Transition Networks Sales by Region
                                   2009                   2008
North America               $         9,787,000    $         9,634,000
Europe, Middle East, Asia             1,190,000              1,277,000
Rest of world                         1,160,000              2,138,000
                            $        12,137,000    $        13,049,000

Sales in North America were essentially flat increasing only $153,000 or 2%. International sales decreased $1,065,000, or 31% primarily due to the impact of the global economic crisis and currency fluctuations. Customers have either delayed or canceled projects, but the Company is continuing to invest in the region because long term projects are promising.

The following table summarizes Transition Networks' 2009 and 2008 first quarter sales by its major product groups:

Transition Networks Sales by Product Group

                             2009                      2008
Media converters    $            9,616,000    $           11,287,000
Ethernet switches                  547,000                   602,000
Ethernet adapters                1,316,000                   553,000
Other products                     658,000                   607,000
                    $           12,137,000    $           13,049,000

Gross margin on first quarter Transition Networks' sales increased to $6,312,000 in 2009 from $6,205,000 in 2008. Gross margin as a percentage of sales was 52% in 2009, compared to 48% in the 2008 period, due to decreased manufacturing costs related to the inventory cost reduction plan started in 2008 and change in product mix. The increase in sales of Ethernet adapters and decrease in media converters is one of the contributors to the increased margins. Furthermore, the decline in sales of media converters is attributed to the slowing economy around the world. The increase in sales of Ethernet adapters is due to ongoing projects in North America. Selling, general and administrative expenses increased 3% to $4,923,000 in 2009 compared to $4,784,000 in 2008 due to an increase in the international sales force headcount as well as increases in research and development costs related to the creation of new prototypes. Operating income decreased to $1,389,000 in 2009 compared to $1,421,000 in 2008.

JDL Technologies, Inc.

JDL Technologies, Inc. reported 2009 first quarter sales of $2,081,000 compared to $3,160,000 in 2008.

JDL's revenues by customer group were as follows:

                                                   JDL Revenue by Customer Group
                                                      2009                2008
Broward County FL schools                       $      2,011,000    $      1,001,000
U.S. Virgin Islands Dept. of Education (VIDE)                              2,091,000
All other                                                 70,000              68,000
                                                $      2,081,000    $      3,160,000

Revenues earned in Broward County FL increased $1,010,000 or 101% in 2009. The increase was the result of network refresh work due originally scheduled for 2008 that was performed in the first quarter of 2009 due to customer budget limitations in the fourth quarter of 2008. The decrease in VIDE revenue in 2009 was due to the loss of the VIDE contract for the 2008-2009 school year.

JDL gross margin was $644,000 in the first quarter of 2009 compared to $1,435,000 in the same period in 2008. Gross margin in 2008 was significantly impacted by the timing of the recognition of revenues from JDL's VIDE contracts as the cost related to the revenue recognized in the first quarter of 2008 was recognized in 2007. Costs of $1.4 million were recorded in 2007, when the services were provided, related to the $1.3 million revenue that was recognized in the first quarter of 2008 when the E-Rate funding was approved. Selling, general and administrative expenses increased in 2009 to $321,000 compared to $229,000 in 2008 due to one-time administrative costs. JDL reported operating income of $323,000 in the first quarter of 2009 compared to an operating loss of $2,014,000 in the same period of 2008.

Austin Taylor

Austin Taylor's revenues decreased to $697,000 for the first quarter of 2009, compared to $1,666,000 in 2008. This decrease is primarily due to the general market and economy slowdown. Gross margin decreased 86% to $44,000 in 2009 from $323,000 in 2008. Gross margin as a percentage of sales was 6% in 2009 compared to 19% in 2008. This decrease was due to greatly increased material costs compounded by an unfavorable currency exchange rate during the first quarter of 2009. Additionally, Austin Taylor was burdened with the impact of product quality issues from two of its major vendors. Austin Taylor reported an operating loss in 2009 of $237,000 compared to operating income of $41,000 in 2008.

Other

Net investment income remained stable at $160,000 in 2009 as compared to $158,000 in 2008. Income before income taxes increased to $1,937,000 in 2009 compared to $356,000 in 2008. The Company's effective income tax rate was 37% in 2009 compared to 48% in 2008. This effective rate was higher than the standard rate of 35% due to state income taxes, foreign losses not deductible for U.S. income tax purposes, provisions for interest charges and settlement of uncertain income tax positions as explained in Note 7 above.

At March 31, 2009, the Company had approximately $31,144,000 of cash equivalents and investments compared to $29,952,000 of cash equivalents and investments at December 31, 2008. The Company had current assets of approximately $76,806,000 and current liabilities of $8,523,000 at March 31, 2009 compared to current assets of $80,819,000 and current liabilities of $10,091,000 at December 31, 2008.

Net cash provided by operating activities was $2,606,000 in the first three months of 2009 compared to $1,966,000 used in the same period in 2008. Significant working capital changes from December 31, 2008 to March 31, 2009 included decreased inventory of $1,488,000 due to sale of increased inventory purchases at the end of 2008 and a decrease in accounts receivable of $389,000 due to the timing of collections.

Net cash used in investing activities was $14,998,000 in the first three months in 2009 compared to cash used of $1,237,000 in the same period in 2008, due to the purchase of certificates of deposit with maturities of greater than 90 days during the quarter, offset by the sale of such investments. Additionally, there was a decrease in capital expenditures at the Company's new building in Minnetonka, Minnesota. In the first quarter of 2008, the Company spent approximately $700,000 in equipping the new building, which did not occur in the first quarter of 2009.

Net cash used in financing activities was $1,039,000 and $801,000 in the first three months of 2009 and 2008, respectively. Cash dividends paid in the first three months of 2009 were $994,000 ($.12 per common share) compared to $1,029,000 ($.12 per common share) in the same period in 2008. Proceeds from common stock issuances, principally exercises of employee stock options, totaled approximately $67,000 in the first three months of 2009 and $298,000 in the same period in 2008. The Company's Board of Directors has authorized the purchase and retirement, from time to time, of shares of the Company's stock on the open market, or in private transactions consistent with overall market and financial conditions. In the first three months of 2009, the Company purchased and retired 2,869 of its common shares at a cost of $26,000. At March 31, 2009, 484,194 additional shares could be repurchased under outstanding Board authorizations. The Company has a $10,000,000 line of credit from U.S. Bank. Interest on borrowings on the credit line is at the LIBOR rate plus 1.5% (2.7% at March 31, 2009). There were no borrowings on the line of credit during the first three months of 2009 or 2008. The credit agreement expires September 30, 2009 and is secured by assets of the Company. As part of the acquisition of the new Minnetonka headquarters building in July 2007, the Company assumed an outstanding mortgage of $4,380,000. The mortgage is payable in monthly installments and carries an interest rate of 6.83%. The mortgage matures on March 1, 2016. Mortgage payments on principal totaled $85,000 during the first quarter of 2009. The outstanding balance on the mortgage was $3,038,000 at March 31, 2009.

In the opinion of management, based on the Company's current financial and operating position and projected future expenditures, sufficient funds are available to meet the Company's anticipated operating and capital expenditure needs.

Our critical accounting policies, including the assumptions and judgments underlying them, are discussed in our 2008 Form 10-K in Note 1 Summary of Significant Accounting Policies included in our Consolidated Financial Statements. There were no significant changes to our critical accounting policies during the three months ended March 31, 2009.

The Company's accounting policies have been consistently applied in all material respects and disclose such matters as allowance for doubtful accounts, sales returns, inventory valuation, warranty expense, income taxes, revenue recognition, asset and goodwill impairment recognition and foreign currency translation. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. Management on an ongoing basis reviews these estimates and judgments.

We do not believe there are any recently issued accounting standards that have not yet been adopted that will have a material impact on the Company's financial statements.