The following discussion provides an analysis of the Company's financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of this Annual Report on Form 10-K.

Selected Relationships within the Consolidated Statements of Operations

                                                           Years Ended August 31,
                                                        2008        2007        2006
                                                           (dollars in thousands)
   Revenue                                            $ 132,478   $ 127,460   $ 108,442
   Net Income                                         $  12,374   $  10,193   $   6,114
   Increase in revenue from prior year
     Amount                                           $   5,018   $  19,018   $  17,053
     Percentage                                               4 %        18 %        19 %
   Increase in net income from prior year
     Amount                                           $   2,181   $   4,079   $   1,326
     Percentage                                              21 %        67 %        28 %
   Percentage of revenue:
     Revenue                                                100 %       100 %       100 %
     Expenses:
       Cost of products and services sold                    68 %        69 %        72 %
       Selling, general and administrative expenses          18          18          19

     Income before income taxes                              14          13           9
     Income taxes                                             5           5           3

     Net income                                               9 %         8 %         6 %

Recent Developments

In September 2007, Chase purchased certain product lines and a related manufacturing facility in Rye, East Sussex, England through its wholly owned subsidiary, Chase Protective Coatings Ltd. For over 35 years, this business has been a leading manufacturer of waterproofing and corrosion protection systems for oil, gas and water pipelines and has been a major supplier to Europe, the Middle East and Southeast Asia. This new acquisition joins Chase's North American based Tapecoat® and Royston® brands to broaden the protective coatings product line and better address increasing global demand. Results from these acquired operations are reflected in the Company's consolidated fiscal 2008 financial statements and not in previous years.

Overview

The continued strength of the Company's key brands, strategic acquisitions, favorable product mix and diligent cost management practices were the primary contributors to healthy revenue and increased profit in fiscal 2008 despite being faced with the ongoing challenges of the housing market decline and rising raw material costs. A strong finish to fiscal 2008 was highlighted by the record quarterly highs for revenues and net income in the fourth quarter. The Company's Specialized Manufacturing segment revenue growth was primarily attributable to the operations acquired by HumiSeal Europe SARL in March 2007 and Chase Protective Coatings Ltd. in September 2007. Increased sales of pipeline and conformal coatings products were offset by decreases seen in building wire and cable and construction products.

The Company's Electronic Manufacturing Services segment achieved record revenues in fiscal 2008 as the demand for contract manufacturing services from existing customers remained strong throughout the year. This segment continues to benefit from management's recent emphasis on expanding its customer base in order to utilize investments made in capital equipment over the past few years. Although the Company's operating results from this segment have been positive, rising manufacturing costs and ongoing pressure from key customers to keep sale prices low continue to negatively impact margins.

In fiscal 2009, the Company will focus on addressing the future impacts of the uncertainties presented by the current global economy by paying close attention to the overall demand for its eight core product lines and continuing with its emphasis of maintaining a diversified product mix. The Company expects that the current housing market decline and continued pressure on gross margins, including uncertainties related to raw material costs, will be challenges during the upcoming fiscal year. Additionally, management will continue with its ongoing efforts to reduce costs through strategic consolidation within its own organization while at the same time providing capacity for growth. The Company is essentially debt-free with substantial borrowing capacity for expected acquisition opportunities and plant expansion needs.

The Company has two reportable segments summarized below:

                                                   Manufacturing Focus and
           Segment            Product Lines               Products
           Specialized     •     Wire and Cable   Produces protective
           Manufacturing   •     Electronic       coatings and tape
           Segment         •     Coatings         products including
                           •     Transportation   insulating and conducting
                           •     Pipeline         materials for wire and
                           •     Construction     cable manufacturers,
                           •     Packaging and    protective coatings for
                                 Industrial       pipeline applications,
                                 Digital and      moisture protective
                                 Print Media      coatings for electronics,
                                                  high performance
                                                  polymeric asphalt
                                                  additives, expansion and
                                                  control joint systems for
                                                  use in the transportation
                                                  and architectural
                                                  markets, and custom
                                                  pressure sensitive
                                                  labels.
           Electronic      •     Contract         Provides assembly and
           Manufacturing         Electronic       turnkey contract
           Services              Manufacturing    manufacturing services
           Segment               Services         including printed circuit
                                                  board and
                                                  electromechanical
                                                  assembly services to the
                                                  electronics industry
                                                  operating principally in
                                                  the United States.

Results of Operations

Revenues and Operating Profit by Segment are as follows (dollars in thousands)

                                                        Income Before
                                                      Income Taxes and
                                          Revenue     Minority Interest    % of Revenue
 Fiscal 2008
 Specialized Manufacturing               $ 113,177     $          22,434              20 %
 Electronic Manufacturing Services          19,301                 2,138              11

                                         $ 132,478                24,572              19

    Less corporate and common costs                               (5,288 )

       Income before income taxes                      $          19,284

 Fiscal 2007
 Specialized Manufacturing               $ 109,195     $          20,094              18 %
 Electronic Manufacturing Services          18,265                 2,040              11

                                         $ 127,460                22,134              17

    Less corporate and common costs                               (5,955 )

       Income before income taxes                      $          16,179

 Fiscal 2006
 Specialized Manufacturing               $  95,418     $          14,960              16 %
 Electronic Manufacturing Services          13,024                 1,072               8

                                         $ 108,442                16,032              15

    Less corporate and common costs                               (7,068 )

       Income before income taxes                      $           8,964

Total Revenues

Total revenues for fiscal 2008 increased $5.0 million or 4% to $132.5 million from $127.5 million in the prior year. Revenues in the Company's Specialized Manufacturing segment increased $4.0 million or 4% to $113.2 million for the year ended August 31, 2008 compared to $109.2 million for fiscal 2007. The increase in revenues from the Company's Specialized Manufacturing segment in fiscal 2008 is primarily due to increased sales related to the following:
(a) the operations acquired by HumiSeal Europe SARL in March 2007 and Chase Protective Coatings Ltd. in September 2007 which combined have accounted for the majority of the $5,546,000 increased revenue from the Company's European Operations; (b) increased sales of $1,578,000 from the Pipeline product line;
(c) increased sales of $1,616,000 from the Electronic Coatings product line; and
(d) increased sales of $926,000 from a large, nonrecurring construction project that was completed in the fiscal year. These increases were partially offset by the following: (a) decreased sales of $2,477,000 in the Wire & Cable market primarily due to decreased demand for building wire, insulation and identification tapes; (b) decreased sales of $1,549,000 in the Transportation and Packaging & Industrial product lines; and (c) decreased sales of $945,000 in the Construction product line primarily due to the reduction in Rosphalt 50® project sales which experienced record levels in fiscal 2007.

The Electronic Manufacturing Services segment achieved record revenues in fiscal 2008 which increased $1.0 million or 5% to $19.3 million compared to $18.3 million in fiscal 2007. This increase

was primarily due to increased order activity from existing customers as well as several new customers added during the current fiscal year. This segment continues to face ongoing pressure as its key customers assess their inventory levels and closely monitor their own customer demands.

Royalty and commissions in the Specialized Manufacturing segment remained relatively flat at $1.8 million for the years ended August 31, 2008 and 2007.

Export sales from domestic operations to unaffiliated third parties were $15.8 million, $14.0 million, and $14.1 million for the years ended August 31, 2008, 2007 and 2006, respectively. The increase in export sales in fiscal 2008 was primarily due to strong demand for the Company's HumiSeal product offerings in Asia. The Company does not anticipate any material change to export sales during fiscal 2009.

Total revenues for fiscal 2007 increased $19.1 million or 18% to $127.5 million from $108.4 million in fiscal 2006. Revenues in the Company's Specialized Manufacturing segment increased $13.8 million or 14% to $109.2 million for the year ended August 31, 2007 compared to $95.4 million for fiscal 2006. The increase in revenues from the Company's Specialized Manufacturing segment in fiscal 2007 was primarily due to increased sales in the following product markets: (a) $7.3 million from Construction products due to increased highway projects including Rosphalt 50® as well as sales from the Capital Services acquisition, (b) $2.9 million from the Company's European operations including $1.6 million related to the establishment of HumiSeal SARL,
(c) $2.4 million from Pipeline products, and (d) $1.4 million from Electronic Coatings.

The Company's Electronic Manufacturing Services segment revenues increased $5.3 million or 41% to $18.3 million for the year ended August 31, 2007 compared to $13.0 million for fiscal 2006. This increase was primarily due to increased order activity from existing customers as well as higher volume due to several new customers added in the latter half of fiscal 2006 that the Company began shipping to in fiscal 2007. Additionally, the softness in the assembly market seen in fiscal 2005 and the early part of fiscal 2006 rebounded contributing to overall demand.

Royalty and commissions in the Specialized Manufacturing segment increased $510,000 or 40% for the year ended August 31, 2007 compared to fiscal 2006. Of this increase, $370,000 was attributable to increased activity during fiscal 2007 from the Company's Asian licensee.

Cost of Products and Services Sold

Cost of products and services sold increased $1.8 million or 2% to $89.7 million for the fiscal year ended August 31, 2008 compared to $87.9 million in fiscal 2007. As a percentage of revenues, cost of products and services sold decreased to 68% in fiscal 2008 compared to 69% for fiscal 2007.

The following table summarizes the relative percentages of revenues for costs of products and services sold for both of the Company's reporting segments:

                                                       Fiscal Years Ended
                                                           August 31,
            Cost of products and services sold      2008       2007     2006
            Specialized Manufacturing                   65 %       67 %    70 %
            Electronic Manufacturing Services           82 %       82 %    84 %
                   Total                                68 %       69 %    72 %

Cost of products and services sold in the Company's Specialized Manufacturing segment for the fiscal year ended August 31, 2008 were $73.8 million compared to $72.9 million in fiscal 2007. The dollar value increase in cost of products and services sold in this segment during fiscal 2008 was primarily attributable to increased revenues offset by management's emphasis on leveraging

the Company's fixed costs and improving manufacturing efficiencies. The decrease in cost of products and services sold as a percentage of revenues in this segment during fiscal 2008 was a direct result of a favorable product mix coupled with continued focus and scrutiny on material purchases that have helped stabilize margins on many of the Company's key product lines.

Cost of products and services sold in the Company's Electronic Manufacturing Services segment were $15.9 million for the fiscal year ended August 31, 2008 compared to $15.0 million in fiscal 2007. The increase in dollar value of cost of products and services sold in the Company's Electronic Manufacturing segment was a direct result of increased revenues and manufacturing costs in fiscal 2008. As a percentage of revenues, cost of products and services sold in this segment remained flat in fiscal 2008 and 2007. This reflects increasing manufacturing costs and competitive pricing pressures placed on this segment by many of its key customers in fiscal 2008, offset by the Company's ability to leverage its fixed overhead costs on a higher revenue base.

In fiscal 2007, cost of products and services sold increased $10.3 million or 13% to $87.9 million compared to $77.6 million in the prior fiscal year. Cost of products and services sold in the Company's Specialized Manufacturing segment for the fiscal year ended August 31, 2007 were $72.9 million compared to $66.6 million in fiscal 2006. The dollar value increase in this segment was a direct result of increased revenues during 2007. As a percentage of revenues, cost of products and services sold in this segment decreased in fiscal 2007 as compared to fiscal 2006. In spite of increases and fluctuations in the price of raw materials, some changes in product mix, management's focus on improving manufacturing efficiencies and leveraging the Company's fixed costs coupled with an emphasis on strategic purchases helped maintain solid margins on most of the Company's key product lines.

Cost of products and services sold in the Company's Electronic Manufacturing Services segment were $15.0 million in fiscal 2007 compared to $11.0 million in fiscal 2006. The dollar value increase in cost of products and services sold was also a direct result of higher revenues during fiscal 2007. The decrease in cost of products and services sold as a percentage of revenues in this segment reflects the Company's ability to leverage its fixed overhead costs on a higher revenue base and offset the increasing raw material costs experienced by this business segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1.5 million or 7% to $23.9 million during fiscal 2008 compared to $22.4 million in fiscal 2007. As a percentage of revenues, selling, general and administrative expenses remained flat at 18% for the years ended August 31, 2008 and 2007. The dollar increase in fiscal 2008 relates primarily to increased employee head count due to acquisitions along with rising employee-related benefits, including health care costs, and increased stock based compensation costs of approximately $778,000 related to the Company's long term incentive plan. These cost increases in fiscal 2008 were partially offset by a decrease of approximately $300,000 in costs related to professional services required for compliance with the internal control reporting requirements of Section 404 of the Sarbanes-Oxley Act compared to fiscal 2007 which was the Company's initial year of compliance.

Selling, general and administrative expenses increased $1.8 million or 9% to $22.4 million during fiscal 2007 compared to $20.6 million in fiscal 2006. As a percentage of revenues, selling, general and administrative expenses were 18% for the year ended August 31, 2007 compared to 19% for the year ended August 31, 2006. The dollar increase in fiscal 2007 included approximately $1 million of additional expenses incurred related to professional services required for compliance with the internal control reporting requirements of Section 404 of the Sarbanes-Oxley Act. Due to the increased market value of the Company's publicly held common stock, the deadline for complying with the internal control provisions of Sarbanes-Oxley was accelerated as the Company

became an accelerated filer under SEC regulations beginning with the Annual Report on Form 10-K for the fiscal year ending August 31, 2007. The increase in selling, general and administrative expenses was also in part due to increased accrued incentive compensation for the management and employee incentive plan as well as increased sales commissions due to the Company's strong results. These selling, general and administrative expense increases observed during fiscal 2007 were partially offset by a decrease in the non-cash stock based compensation expense of $434,000 to $1,301,000 in fiscal 2007 compared to $1,735,000 in fiscal 2006. The percentage decrease in fiscal 2007 compared to fiscal 2006 can be attributed to the Company's increased revenue base and ongoing efforts to leverage its fixed costs wherever possible.

Bad debt expense, net of recoveries, decreased $215,000 to $53,000 in fiscal 2008 compared to $268,000 in fiscal 2007 and $167,000 in fiscal 2006. The decrease in fiscal 2008 was a direct result of management's strict adherence to its established credit policies as well as closely monitoring the accounts receivable function and taking a proactive approach to the collections process. The increase in fiscal 2007 relates to a product dispute with a customer in the Company's Specialized Manufacturing segment and financial difficulties for two customers in the Company's Electronic Manufacturing Services segment.

Loss on Impairment of Goodwill

In fiscal 2007, the Company concluded the carrying amount of goodwill for the NEQP division was not fully recoverable and an impairment charge of $311,000 was recorded as of May 31, 2007. Goodwill related to NEQP, having a pre-impairment book value of $660,000, was written down to its estimated fair value of $349,000. The Company continues to assess the realizability of this asset under appropriate generally accepted accounting principles, including the continued annual impairment test, which is completed each August in conjunction with the Company's fiscal year end.

Interest Expense

Interest expense was $40,000 in fiscal 2008 compared to $900,000 and $1,018,000 in fiscal 2007 and 2006, respectively. The decrease in interest expense over the past two fiscal years is a direct result of a reduction in the Company's overall debt balances through principal payments from operating cash flow and an overall decrease in interest rates.

Other Income

Other income increased $236,000 to $477,000 in fiscal 2008 compared to $241,000 and $183,000 in fiscal 2007 and 2006, respectively. Other income includes bank interest earned by the Company's HumiSeal Europe division and monthly rental income of $14,875 on property (building and land) owned by the Company and leased to Sunburst Electronic Manufacturing Solutions, Inc. under a thirty-six month rental agreement commencing on December 1, 2006 and expiring on November 30, 2009. The fiscal year 2008 increase over the prior year periods consists primarily of bank interest and exchange gains earned by the Company's HumiSeal Europe division. The fiscal year 2007 increase in other income consists primarily of a $3,000 increase in monthly rental fees per the new rental agreement and bank interest earned by the Company's HumiSeal Europe division.

Income Taxes

The effective tax rate for fiscal 2008 was 35.8% compared to 37.0% and 32.0% in fiscal 2007 and 2006, respectively. In all three years, the Company has received the benefit of the domestic production deduction and foreign rate differential. The effective tax rate of 35.8% for fiscal 2008

compares favorably to the prior year due to an increase in the applicable domestic production deduction for the year. The effective tax rate of 32% in fiscal 2006 reflects a benefit of $635,000. Excluding this tax benefit, the revised effective tax rate in fiscal 2006 would have been approximately 38.0% compared to 35.8% in fiscal year 2008 and 37.0% in fiscal year 2007. This tax benefit was the result of the Company's conclusion in fiscal 2006 that it was more likely than not that the deferred tax asset in the form of capital loss carryforwards totaling $1.7 million would be realized prior to its expiration beginning in fiscal 2009 as a result of the anticipated sale of real property currently owned by the Company. Accordingly, the valuation allowance previously recorded against this deferred tax asset was reversed in the quarter ending November 30, 2005 resulting in a tax benefit of $635,000 which was reflected in the fiscal 2006 results. The gain on the sale of this property will be recorded for both financial reporting and tax purposes in the period in which title is transferred from the Company to the buyer of the property.

Net Income

Net income in fiscal 2008 increased $2.2 million or 22% to $12.4 million compared to $10.2 million in fiscal 2007. The increase in net income in the current year is primarily due to increased revenue growth in the Company's core product lines coupled with favorable product mix and the Company's ability to leverage its fixed costs and properly manage increasing raw material costs. As discussed previously, fiscal 2007 net income was negatively impacted by higher expenses incurred related to the Company's first year of compliance with
Section 404 of the Sarbanes-Oxley Act and the loss on impairment of goodwill from NEQP.

Net income in fiscal 2007 increased $4.1 million or 67% to $10.2 million compared to $6.1 million in fiscal 2006. The increase in net income in fiscal 2007 was primarily due to increased revenue growth in the Company's core product lines coupled with the Company's ability to leverage its fixed costs. These increases in fiscal 2007 were partially offset by approximately $1 million of expenses incurred related to the Company's first year of compliance with
Section 404 of the Sarbanes-Oxley Act. Additionally, fiscal 2006 net income was lower as a result of charges recorded during that year related to the loss on impairment of goodwill from NEQP of $457,000, stock based compensation of $1,735,000 and deferred compensation expense of $814,000 compared to a loss on impairment of goodwill of $311,000 and stock based compensation of $1,301,000 in fiscal 2007.

Liquidity and Sources of Capital

The Company's cash balance increased $1,473,000 to $3,917,000 at August 31, 2008 from $2,444,000 at August 31, 2007. The increased cash balance at August 31, 2008 was a result of cash flow generated during the year, after a portion was used to repay all outstanding balances on the Company's existing debt. Management continues to review its current cash balances denominated in foreign currency in light of current tax guidelines and potential acquisitions. The cash balances of $2,444,000 and $2,416,000 at August 31, 2007 and 2006, respectively were a result of cash flow generated during the year being held for pending acquisitions which closed subsequent to year end.

Cash flow provided by operations was $15,546,000 for the year ended August 31, 2008 compared to $14,705,000 in fiscal 2007 and $10,348,000 in fiscal 2006. Cash provided by operations during fiscal 2008 was primarily due to operating income and increased accounts payable offset by purchases of raw materials. Cash provided by operations during fiscal 2007 was primarily due to operating income and decreased inventory balances offset by increased accounts receivable balances. Cash provided by operations during fiscal 2006 was primarily due to operating income offset by increased inventory and accounts receivable balances which were higher due to an increase in sales volume.

The ratio of current assets to current liabilities remained flat at 2.3 as of August 31, 2008 and 2007. Increases in the Company's cash balance, accounts receivable and inventory, due to increased demand and overall sales volume, along with a decrease in the current portion of long-term debt were offset by related increases in accounts payable and accrued expenses.

Cash flow used in investing activities was $5,779,000 for the year ended August 31, 2008 compared to $7,750,000 in fiscal 2007 and $8,752,000 in fiscal 2006. During fiscal 2008, cash flow used in investing activities was primarily due to $1,490,000 paid for the assets acquired by Chase Protective Coatings Ltd., purchases related to the build out of the Company's manufacturing facility in Pittsburgh of approximately $934,000, contingent payments related to recent acquisitions of $1,041,000, and cash paid for purchases of machinery and equipment at the Company's other manufacturing locations. During fiscal 2007, . . .