OVERVIEW

We develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists, pedestrians and road workers in both domestic and international markets. Our continuing operations are comprised of two reportable segments within the highway and transportation safety industry. Our two reportable segments are: the manufacture and sale of highway and transportation safety products which Protect and Direct and the manufacture and sale of highway products and services which Inform motorists and highway personnel. The Protect and Direct segment provides solutions for improving safety on the roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding traffic. The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, sand-filled barrels and water-filled barriers, and directing and guiding products such as flexible post delineators and glare screen systems. The Inform segment provides solutions for improving traffic flow and safety on roads and runways by providing information. The primary product lines within the Inform segment include advanced sensing products which measure distance, count and classify vehicles; weather sensing systems and computerized highway advisory radio transmitting systems.

Our products are sold worldwide primarily through a distribution network and supplemented by a direct sales force to customers in the highway construction and safety business, state and municipal departments of transportation, and other governmental transportation agencies. The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental policies and budgets. A portion of our domestic sales is ultimately financed by funds provided to the states by the federal government. Historically, these funds have covered 75% to 90% of the cost of highway safety projects on roads constructed or maintained with federal assistance. Seasonality affects our business with generally a higher level of sales in our fourth fiscal quarter.

Due to the recent market events that have adversely affected most industries and the economy as a whole, management has placed increased emphasis on monitoring the risks associated with the current environment, particularly the collectibility of accounts receivables and our liquidity. If the future economic environment continues to deteriorate, the company could experience difficulties due to the financial viability of certain of its customers and suppliers. In addition, the volatility in the company's stock price and declines in its market capitalization could put pressure on the carrying value of goodwill and other long-lived assets if these conditions persist for an extended time. At this point in time, there has not been a material impact on our assets and liquidity. Management will continue to monitor the risks associated with the current economic environment and their impact on our results.

DISCONTINUED OPERATIONS

On July 25, 2008, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in cash. The Intersection Control segment sold products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment and toll road monitoring systems. Accordingly, we reflect the results of those operations as discontinued operations for all periods presented. The assets and liabilities of the divested segment were classified as assets and liabilities held for sale within our consolidated balance sheets until the sale. In the quarter ended September 30, 2008, we recorded a loss on the sale of this business of $712,000, net of income taxes. The sale of this business allowed us to strengthen our balance sheet and improve our financial flexibility by reducing the amount outstanding against our revolving credit facility.

For the current first quarter, sales increased 3% compared to the first quarter of fiscal 2008 due to increased sales in both the Protect and Direct and the Inform segments offset somewhat by decreased domestic sales in the Protect and Direct segment. International sales for the first quarter of fiscal 2009 increased 58%, or $2,909,000, compared to the first quarter last year as sales increased across all major non-US regions, particularly in Europe. Domestic sales decreased 12%, or $2,274,000, compared to the first quarter of fiscal 2008 due to state and municipal budgetary constraints. Sales for the Protect and Direct segment increased 1% compared to the first quarter of last year due to increased international sales which were mostly offset by decreased domestic sales. Sales in the Inform segment increased 8% driven by strong international sales. For the first quarter, operating profit decreased primarily due to unfavorable product sales mix in the Protect and Direct segment. See FUTURE OUTLOOK for further information.

The following table sets forth selected key operating statistics relating to the financial results of our continuing operations:

                                                    Three Months Ended
                                                        September,
                                                    2008           2007
          Revenues by Segment:
               Protect and Direct               $ 19,982,000   $ 19,725,000
               Inform                              5,157,000      4,779,000

                                                $ 25,139,000   $ 24,504,000

          Geographic Revenues:
               Domestic                         $ 17,181,000   $ 19,455,000
               International                       7,958,000      5,049,000

                                                $ 25,139,000   $ 24,504,000

          Operating Income (Loss) by Segment:
               Protect and Direct               $  2,372,000   $  3,229,000
               Inform                                420,000        345,000
               Unallocated Corporate              (1,450,000 )   (1,557,000 )

                                                $  1,342,000   $  2,017,000

          Gross profit percentage                       32.8 %         34.4 %

          Selling and administrative expenses
          as a percentage of sales                      23.8 %         22.5 %

          Diluted earnings from continuing
          operations per share                  $       0.03   $       0.06

Our net sales for the first quarter of fiscal 2009 increased $635,000, or 3%, to $25,139,000 from $24,504,000 for the first quarter last year. This was due to increased international sales in both segments, which were partially offset by decreased domestic sales in the Protect and Direct segment.

Geographic-International sales for the first quarter of fiscal 2009 increased $2,909,000, or 58%, to $7,958,000, compared to $5,049,000 for the first quarter last year with increases across all regions, particularly in Europe. International sales for the Protect and Direct segment increased 55%, or $2,565,000, primarily due to increased sales of ABC Terminal products in Europe and Latin America. International sales for the Inform segment increased 90%, or $344,000, from last year primarily in Canada and the Asia Pacific region. Domestic sales for the first quarter of fiscal 2009 decreased 12% to $17,181,000 from $19,455,000 due to decreased sales in the Protect and Direct segment which we believe is due to the current economic uncertainty and state and municipal budgetary constraints. Domestic sales in the Inform segment increased 1% over the first quarter last year.

Protect and Direct-Net sales for the Protect and Direct segment for the first quarter of fiscal 2009 increased 1% to $19,982,000 from $19,725,000 for the first quarter last year due to increases in international sales, partially offset by decreases in domestic sales compared to last year. The increase in international sales was across most regions, but most significant in Europe, where we added several new distributors late last fiscal year; in the Mideast/Africa region, where we opened a new sales office in Dubai late last year; and in Latin America. Sales of our ABC Terminal products are up $2,127,000 over the prior year, primarily in Europe and Latin America. Sales of Triton Barriers® and permanent crash cushions also increased over the prior year, while sales of truck mounted attenuators, parts and delineators decreased from last year.

Inform-Net sales for the Inform segment for the first quarter of fiscal 2009 increased 8%, or $378,000, to $5,157,000 from $4,779,000 for the first quarter last year primarily due to increased international sales. Sales of weather and traffic sensing systems increased, offset somewhat by decreased sales of highway advisory radio products.

Gross Profit Margin

Our gross profit margin for the first quarter of fiscal 2009 was 32.8% compared to 34.4% for the first quarter last year. The gross margin for the Protect and Direct segment declined primarily due to unfavorable product sales mix as a result of increased sales of our lower margin ABC Terminal products. The gross margin for the Inform segment increased somewhat due partially to volume efficiencies and partially due to a favorable product sales mix with increased sales of higher-margin traffic sensing systems.

Selling and Administrative Expenses

Selling and administrative expenses for the first quarter of fiscal 2009 increased $461,000, or 8%, to $5,974,000 from $5,513,000 for the first quarter last year. This was primarily due to increased legal and marketing promotion expenses in our Protect and Direct segment and due to decreased bad debt expense for both segments for the first quarter last year. Selling and administrative expenses increased as a percentage of sales to 23.8% for the first quarter of 2009 from 22.5% last year.

Research and Development

Research and development expenditures increased to $922,000 for the first quarter of fiscal 2009 compared to $889,000 for the same period last year as we continue our development of new products.

Operating profit for the first quarter of fiscal 2009 was $1,342,000 compared to operating profit of $2,017,000 for the first quarter of fiscal 2008. For the first quarter of fiscal 2009, operating profit for the Protect and Direct segment decreased 27% to $2,372,000 from $3,229,000 due primarily to unfavorable product sales mix and increased legal and marketing promotion expenses. Operating profit for the Inform segment increased 22% to $420,000 compared to operating profit of $345,000 for the first quarter of last year related to their increased sales this year.

Interest Expense

Interest expense for the first quarter of fiscal 2009 decreased to $917,000 from $1,095,000 for the first quarter last year, primarily due to the lower average level of borrowings outstanding. The majority of our interest expense relates to $40 million in convertible debentures at a fixed rate of 7.0%. The interest rate on our bank revolving credit facility, against which $900,000 is outstanding as of September 30, 2008, is based on prime or LIBOR plus a margin. Our overall weighted average interest rate was 7.0% as of September 30, 2008.

Income Tax Provision

The income tax provision for the first quarter of fiscal 2009 was $162,000 representing a 38% effective income tax rate. The income tax provision for the first quarter of fiscal 2008 was $350,000 also representing a 38% effective income tax rate.

Earnings from Continuing Operations

Earnings from continuing operations for the first quarter of fiscal 2009 were $263,000, or $0.03 cents per diluted share, compared to earnings of $574,000, or $0.06 cents per diluted share, for the first quarter last year.

Loss from Discontinued Operations, net of income taxes

The loss from discontinued operations, net of income taxes, for the first quarter of fiscal 2009 was $758,000, or $0.08 per diluted share, compared to a loss of $104,000, or $0.01 per diluted share for the first quarter last year. Included in the loss was a $712,000 loss on the sale of the Intersection Control segment in the first quarter of fiscal 2009.

Net Earnings (Loss)

The net loss for the first quarter of fiscal 2009 was $495,000, or $0.05 per diluted share, compared to net earnings of $470,000, or $0.05 per diluted share for the first quarter last year.

Liquidity and Capital Resources

Our principal sources of cash historically have been cash flows from operations and borrowings from banks and other sources. We had cash and cash equivalents of $207,000 as of September 30, 2008. Our secured bank credit agreement provides for $40 million in borrowings under which we have access to additional funds of approximately $15 million as of September 30, 2008. The credit agreement includes both fixed and floating interest rate options, at the prime rate or LIBOR rate, plus a margin. The credit agreement also contains affirmative and negative covenants including requirements that we meet certain consolidated financial criteria, including a fixed charge coverage ratio, a maximum senior leverage ratio, and a maximum total leverage ratio. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in such agreements. We were either in compliance with these covenants or we received the necessary waivers from the bank through the first quarter of fiscal 2009. The credit agreement currently expires in February 2010, but may be renewed one additional year on each anniversary date upon mutual consent of the Company and the bank.

Our outstanding borrowings were $40,900,000, or 48.2% of total capitalization, as of September 30, 2008, of which $900,000 was outstanding against our bank credit facility. This compares to outstanding borrowings of $57,600,000, or 56.8% of total capitalization, as of June 30, 2008, of which $17,600,000 was outstanding against our bank credit facility. We used $20 million in proceeds from the sale of the Intersection Control segment in the first quarter to pay down substantially all of our revolving bank debt. Included in long-term debt as of September 30, 2008 and June 30, 2008 was $40 million in 7% Convertible Senior Subordinated Notes due February 2025, which the noteholders may require us to repurchase in February 2010. The amount of standby letters of credit outstanding was $902,000 as of September 30, 2008 and $1,012,000 as of June 30, 2008.

Although the variable interest rates under our revolving credit facility have been volatile due to the current difficult credit environment, the financial effect on us has not been significant as the amount outstanding against the facility was only $900,000 as of September 30, 2008. Currently, we do not believe that our operating cash flow needs would require us to significantly increase our bank borrowings in the near term. The majority of our outstanding debt as of September 30, 2008, $40 million of the $40.9 million, represents convertible debentures at a fixed rate of 7.0%.

Cash Flows

Cash flows provided by continuing operations were $332,000 during the first three months of fiscal 2009. This compares with $486,000 provided by continuing operations in the first three months of fiscal 2008. Cash flow generated by operations is derived primarily from earnings before non-cash expenses such as depreciation and amortization. Non-cash expenses of $1,551,000 were nearly offset by a net decrease in cash of $1,442,000 used to fund working capital, primarily representing decreased accounts payable and accrued expenses.

Cash flows used in discontinued operations were $1,545,000 during the first three months of fiscal 2009 compared with $2,622,000 used in the first three months of fiscal 2008 primarily representing decreased accounts payable and accrued expenses.

Investing activities of continuing operations provided cash of $19,566,000 during the first three months of fiscal 2009, compared to using cash of $880,000 in the first three months of the prior year. Proceeds from the sale of the Intersection Control segment provided cash of $20 million in the first quarter of fiscal 2009. Expenditures during the first quarter of fiscal 2009 included $411,000 for capital expenditures compared with $870,000 for the first quarter last year.

For fiscal 2009, we anticipate needing approximately $3,000,000 in cash for capital expenditures. We may require additional investments in working capital to support growth. The credit markets have recently experienced adverse conditions. Continuing volatility in the credit markets may increase costs associated with borrowing and issuing debt instruments or affect our ability to access those markets. Notwithstanding these adverse market conditions, we currently believe that future cash needs will be financed either through cash on-hand, cash generated from operations, from borrowings available under our bank credit facility or from proceeds resulting from the sale of assets. We currently believe that these sources of cash should be sufficient for all planned operating and capital requirements in the near term. Management will continue to closely monitor our liquidity and the credit markets. However, management cannot predict the impact to our company related to any further disruption in the credit environment.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

    We are subject to certain debt obligations, guarantees, commitments and
contingent liabilities further described in our Annual Report on Form 10-K for
the year ended June 30, 2008. The following table presents our contractual
obligations to make future payments under contracts, such as debt and lease
agreements, as of September 30, 2008:

                                         Less than                                 More than
                            Total         1 Year       1-3 Years     3-5 Years      5 Years
Long-term debt(1)        $ 40,900,000   $   900,000   $ 40,000,000
Estimated interest          5,800,000     3,000,000      2,800,000
payments(2)
Operating leases            3,579,000     1,506,000      2,057,000       16,000
Minimum royalty             1,410,000       510,000        600,000      300,000
payments
Uncertain tax benefits        227,000       109,000        118,000
Purchase obligations        1,706,000     1,706,000

Total                    $ 53,622,000   $ 7,731,000   $ 45,575,000    $ 316,000

º (2)
º Amount includes estimated interest payments based on interest rates as of the current period. Interest rates on variable-rate debt are subject to change in the future. Interest is estimated based upon current and effective maturities as well as expected renewals of long-term debt currently outstanding.

As disclosed in the footnotes to the consolidated financial statements, we have entered into bid and performance related bonds associated with various contracts. Potential payments due under these bonds are related to our performance under certain contracts. The total amount of bid and performance related bonds that were available and undrawn as of September 30, 2008 was $2,923,000. We also have standby letters of credit covering potential workers' compensation liabilities and other liabilities. The total standby exposure relating to letters of credit as of September 30, 2008 was $902,000.

Looking forward, we remain cautious due to domestic state and municipal budgetary constraints and the difficult financial market. The domestic marketplace also remains challenging due to the economic environment and higher commodity prices. Although the near-term outlook for domestic spending remains uncertain, recent developments may lead to an improvement in current market conditions. Recent legislation has injected $8.0 billion into the federal highway trust fund that will ensure full federal funding until September 2009. In addition, the current trend towards lower gasoline prices may positively impact state and federal gasoline tax collections as drivers return to the road. There is also the prospect of a possible economic stimulus package aimed at increasing jobs through infrastructure projects. Although we remain cautious, these factors provide us with guarded optimism that prospects for domestic sales of our products may improve in the near term.

We expect international sales to continue to be an important driver of our sales growth and we plan to continue to focus on these markets to reduce our exposure to the domestic market. We continue to invest in our international operations, which is enabling us to further diversify our geographic coverage and increase our exposure to marketplaces where demand for our products continues to grow. We expect that international sales will be an increasing part of our business and may continue to offset the softness in domestic sales this fiscal year. However, there can be no assurance that either international or domestic sales will increase.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's estimates also affect the reported amounts of revenues and expenses during the reporting period. In addition, certain normal and recurring estimates are made, including estimates in determining the allowance for doubtful accounts receivable, inventory valuation reserves, valuation allowance on deferred tax assets and health care liabilities. These estimates are made using management's best judgment given relevant factors and available data. Actual results could differ materially from those estimates. Note 2 to our June 30, 2008 consolidated financial statements includes a summary of the significant accounting policies, methods and estimates used in the preparation of our consolidated financial statements. There have been no material changes in accounting policies, methods and estimates used by management during this fiscal year except for the adoption of accounting pronouncements as described in Note 1 in the Notes to Consolidated Financial Statements. In most instances, we must use an accounting policy or method because it is the only policy or method permitted under U.S. GAAP.

FORWARD LOOKING STATEMENTS

Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Except for historical information, any statement that addresses expectations or projections about the future, including statements about our strategy for growth, product development, market position, expenditures, financial results or changes in governmental legislation, policies and conditions, is a forward-looking statement.

Readers are cautioned not to place undue reliance on these forward-looking statements and that all forward-looking statements involve risks and uncertainties, including those detailed in our public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. There can be no assurance that actual results will not differ materially from our expectations. Factors which could cause materially different results include uncertainties related to continued federal, state and municipal funding for highways and risks related to reductions in government expenditures; economic conditions; market demand; pricing and competitive factors, among others which are set forth in the "Risk Factors" of Part I, Item 1A, to our Annual Report on Form 10-K for the year ended June 30, 2008, which are hereby incorporated by reference.