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 1 of Part I of this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K filed for the fiscal year ended August 31, 2008.

Overview

The Company continues to face challenges in the current economic environment as both sales and profits across most of the Company's product lines remain down from the prior year. While the Company's second quarter ending in February is traditionally a slower time of year for many of its product offerings, this year has also been influenced by the global recession that has led to decreased demand and uncertainty for consumer and industrial products. As discussed in the prior quarter, the financial results of the Company's European Operations continue to be negatively impacted by the weakening pound sterling and euro whose values against the dollar have decreased 28% and 16%, respectively, from February 2008 to February 2009. In spite of the decreased demand that has impacted sales volumes, management continues to be focused on maximizing production efficiencies across all product lines to maintain profit margins.

Revenues for the Chase Electronic Manufacturing Services business remained relatively flat in the second quarter as compared to the prior year period, as the focus on expanding this segment's customer base has helped offset reduced demand for products and services from many of this segment's key customers as they continue to assess inventory levels and their own customer demand. We expect this segment's operating results to continue to be profitable, but not at the same level observed in the prior fiscal year. For the remainder of fiscal 2009, management's attention will be on maintaining a healthy backlog of customer orders and proactively managing overhead costs.

Given the current economy, the Company has placed added importance on its supply chain management, consolidation goals and continuous improvement programs. Cost control efforts have been intensified but are balanced with strategic investment to increase capabilities and productivity. As part of this effort, the Company has acquired property (land and building) in Oxford, MA to reduce off-site storage expenses and provide capacity for future growth. The Company has a strong balance sheet with substantial borrowing capacity for acquisition opportunities and facility reorganization needs.

The Company has two reportable segments summarized below:

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



                                            Three Months Ended                                Six Months Ended
                                February 28, 2009        February 29, 2008        February 28, 2009       February 29, 2008
Revenues from external
customers
Specialized Manufacturing     $       18,963     82 %  $       24,205     86 %  $       45,671     84 %  $       53,796    86 %
Electronic Manufacturing
Services                               4,041     18 %           4,042     14 %           8,402     16 %           9,086    14 %
Total                         $       23,004           $       28,247           $       54,073           $       62,882

Income before income taxes
Specialized Manufacturing     $        1,429      8 %  $        3,753     16 %  $        6,352     14 %  $       10,201    19 %
Electronic Manufacturing
Services                                 397     10 %             470     12 %             722      9 %           1,046    12 %
Total for reportable
segments                               1,826      8 %           4,223     15 %           7,074     13 %          11,247    18 %
Corporate and Common Costs            (1,105 )                 (1,263 )                 (2,765 )                 (2,772 )
Total                         $          721      3 %  $        2,960     10 %  $        4,309      8 %  $        8,475    13 %

Note: Percentages listed represent % of Revenues from External Customers (for each respective segment and period)

Total Revenues

Total revenues decreased $5,243,000 or 19% to $23,004,000 for the quarter ended February 28, 2009 compared to $28,247,000 in the same quarter of the prior year. Total revenues decreased $8,809,000 or 14% to $54,073,000 in the fiscal year to date period compared to $62,882,000 in the same period in fiscal 2008.

Revenues from the Company's Specialized Manufacturing segment decreased $5,242,000 and $8,125,000, in the current quarter and year to date periods, respectively. The decrease in revenues as compared to the prior year periods is primarily due to the following for the current quarter and year to date periods, respectively: (a) decreased sales of $1,699,000 and $2,546,000 in the Electronic Coatings product lines due to decreased demand in the electronic and automotive markets; (b) decreased sales of $1,058,000 and $2,435,000 in the Pipeline and Construction product lines; (c) decreased sales of $26,000 and $1,258,000 in the Transportation product line (primarily a result of the strike at Boeing which negatively impacted sales of our Insulfab product);
(d) decreased sales of $358,000 and $958,000 in the Digital & Print Media product line; and (e) decreased sales of $1,445,000 and $1,559,000 in the Wire & Cable market primarily due to decreased demand in the energy and communications markets. These decreases in revenues were partially offset by increased year to date sales of $815,000 from Chase Protective Coatings Ltd., which was formed by the Company in September 2007.

Compared to the prior year periods, revenues from the Company's Electronic Manufacturing Services segment decreased $1,000 and $685,000 in the current quarter and year to date periods, respectively. Although this business is facing softness in some key market segments, revenues remained relatively flat in the current quarter compared to the prior year period. Sales from new customers and increased orders received from several existing customers offset reduced demand due to the economic recession. This segment's decrease in year to date sales compared to the prior year period is primarily a result of decreased customer orders as many of the Company's key customers continue to assess their inventory levels and closely monitor their own customers' demand during this economic downturn.

Cost of Products and Services Sold

Cost of products and services sold decreased $2,068,000 or 10% to $17,640,000 for the quarter ended February 28, 2009 compared to $19,708,000 in the prior year quarter. Cost of products and services sold decreased $3,473,000 or 8% to $39,199,000 in the fiscal year to date period compared to $42,672,000 in the same period in fiscal 2008.

Cost of products and services sold in the Company's Specialized Manufacturing segment were $14,279,000 and $32,117,000 in the current quarter and year to date periods compared to $16,436,000 and $35,242,000 in the comparable periods in the prior year. Cost of products and services sold in the Company's Electronic Manufacturing Services segment were $3,361,000 and $7,082,000 in the current quarter and year to date periods compared to $3,272,000 and $7,430,000 in the comparable periods in the prior year.

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

                                        Three Months Ended                         Six Months Ended
                              February 28, 2009    February 29, 2008    February 28, 2009    February 29, 2008
 Specialized Manufacturing                   75 %                 68 %                 70 %                 66 %
  Electronic Manufacturing
                  Services                   83 %                 81 %                 84 %                 82 %
                     Total                   77 %                 70 %                 72 %                 68 %

As a percentage of revenues, cost of products and services sold in the Specialized Manufacturing segment was higher primarily due to decreased sales of higher margin products and the increased share of total sales that were made up of lower margin products, coupled with the impact of fixed manufacturing overhead costs on a lower revenue base. Additionally, margin pressures across many of the Company's key product lines remain a challenge as management works to hold selling prices firm in light of the decrease in the cost of petroleum based raw materials compared to last year.

The increase in dollar value of cost of products and services sold for the current quarter as compared to the prior year period for the Electronic Manufacturing Services segment is primarily due to additional costs related to facility and production improvements which were incurred as a result of this segment's focus on new customer business. As a percentage of revenues, cost of products and services sold in this segment increased due to continued competitive pricing pressures and the previously mentioned additional facility and production improvement costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $813,000 or 14% to $4,847,000 for the quarter ended February 28, 2009 compared to $5,660,000 in the prior year quarter. Selling, general and administrative expenses decreased $982,000 or 8% to $10,881,000 in the fiscal year to date period compared to $11,863,000 in the same period in fiscal 2008.

The decrease in the current quarter and year to date period over the prior year periods is primarily attributable to the Company's continued emphasis on cost control with selling and administrative expenses, including reduced annual incentive compensation and external consulting costs. Additionally, lower revenues for the current quarter and year to date periods as compared to the prior year periods have led to decreased sales commissions and other selling related expenses. The year to date decrease was partially offset by increased stock based compensation of $195,000 in fiscal 2009 primarily related to additional shares of restricted stock issued in September 2008 based on the Company's financial results for the fiscal year ending August 31, 2008. In accordance with the Company's long term incentive plan, compensation expense related to these shares is being recognized on a ratable basis over the three year vesting period ending August 31, 2010.

Interest Expense

Interest expense decreased $58,000 or 92% to $5,000 for the quarter ended February 28, 2009 compared to $63,000 in the prior year quarter. Interest expense decreased $136,000 or 93% to $10,000 for the fiscal year to date period ended February 28, 2009 compared to $146,000 in the same period in fiscal 2008. The decrease in interest expense in both the current quarter and year to date period 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 (Expense)

Other income increased $64,000 or 44% to $209,000 for the quarter ended February 28, 2009 compared to $145,000 in the prior year quarter. Other income increased $52,000 or 19% to $326,000 for the fiscal year to date period ended February 28, 2009 compared to $274,000 in the same period in fiscal 2008. 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.

Net Income

Net income decreased $1,411,000 or 76% to $454,000 in the quarter ended February 28, 2009 compared to $1,865,000 in the prior year quarter. Net income decreased $2,625,000 or 49% to $2,714,000 for the fiscal year to date period ended February 28, 2009 compared to $5,339,000 in the same period in fiscal 2008. The decrease in net income in both the current quarter and year to date periods compared to the prior year periods is a direct result of decreased revenue across the Company's core product lines as discussed previously.

Liquidity and Sources of Capital

The Company's cash balance decreased $1,345,000 to $2,572,000 at February 28, 2009 from $3,917,000 at August 31, 2008. Generally, the Company manages its borrowings and payments under its revolving line of credit in order to utilize cash flows to pay down outstanding bank debt. The increased cash balance at August 31, 2008 was a result of cash flow generated during the year, after repaying 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.

Cash flow provided by operations was $5,739,000 in the first six months of fiscal year 2009 compared to $4,902,000 in the prior year period. Cash provided by operations during the first half of fiscal 2009 was primarily due to operating income and increased collection of accounts receivable offset by decreased accounts payable and accrued expenses.

The ratio of current assets to current liabilities was 3.3 as of February 28, 2009 compared to 2.3 as of August 31, 2008. The increase in the Company's current ratio at February 28, 2009 was primarily attributable to decreases in accounts payable, accrued payroll and accrued expenses which were partially offset by decreases in cash and accounts receivable coupled with an increase in accrued stock based compensation.

Cash flow used in investing activities of $3,959,000 was primarily due to $2,351,000 paid for the purchase of real property in Oxford, MA, $605,000 paid for purchases related to the build out of the Company's manufacturing facility in greater Pittsburgh, PA, and cash paid for purchases of machinery and equipment at the Company's other manufacturing locations.

Cash flow used in financing activities of $2,309,000 reflects the $2,986,000 paid for the Company's annual dividend payment offset by increased borrowings under the existing line of credit.

On October 14, 2008, the Company announced a cash dividend of $0.35 per share (totaling $2,986,212) to shareholders of record on October 31, 2008, which was paid on December 3, 2008.

The Company continues to have long-term unsecured credit available up to $10 million at the bank's base lending rate or, at the option of the Company, at the effective 30-Day London Interbank Offered Rate (LIBOR) plus 1.25 percent. The outstanding balance and weighted average interest rate on this credit facility was $0.7 million and 1.66%, respectively, at February 28, 2009. Accordingly, the Company had $9.3 million in unused credit under this facility and plans to utilize this to help finance its cash needs, including acquisitions, in fiscal 2009 and future periods.

As of March 31, 2009, the Company had $9.6 million in unused credit under this facility.

Under the terms of the Company's credit facility, the Company must comply with certain debt covenants related to (a) the ratio of total liabilities to tangible net worth and (b) the ratio of operating cash flow to debt service on a rolling twelve month basis. The Company was in compliance with its debt covenants as of February 28, 2009. The credit facility currently has a maturity date of March 31, 2011.

The Company currently has an ongoing capital project that is related to the build out of its manufacturing facility in greater Pittsburgh, PA. It also plans to add machinery and equipment as needed to increase capacity or to enhance operating efficiencies in its other manufacturing plants. Furthermore, the Company may consider the acquisitions of companies or other assets in fiscal 2009 which are complementary to its business. The Company believes that its existing resources, including its primary credit facility, together with cash generated from operations and additional bank borrowings, will be sufficient to fund its cash flow requirements through at least the next twelve months. However, there can be no assurances that additional financing will be available at favorable terms, if at all.

To the extent that interest rates increase in future periods, the Company will assess the impact of these higher interest rates on the financial and cash flow projections of its potential acquisitions.

The Company does not have any significant off balance sheet arrangements.

Contractual Obligations

Please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in the Company's Form 10-K for the fiscal year ended August 31, 2008 for a complete discussion of the Company's contractual obligations. There were no material changes to the Company's contractual obligations for the quarter ended February 28, 2009.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("FAS 141R"), which replaces FAS 141. FAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; expensing acquisition related costs as incurred; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is to be applied prospectively to business combinations with an acquisition date in fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. The Company expects that FAS 141R will have an impact on accounting for future business combinations once adopted, but the effect is dependent upon acquisitions at that time.

In February 2008, the FASB issued SFAS 157-2, "Effective Date of FASB Statement No. 157" ("FAS 157-2"), which provides a one-year deferral of the effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. The implementation of FAS 157 for financial assets and financial liabilities, effective September 1, 2008, did not have a material impact on the Company's consolidated financial position and results of operations. The Company is currently assessing the impact of FAS 157-2 for nonfinancial assets and nonfinancial liabilities on its consolidated financial position and results of operations.

Critical Accounting Policies

The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States. To apply these principles, management must make estimates and judgments that affect its reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In many instances, the Company reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from its estimates. To the extent that there are material differences between these estimates and actual results, the Company's financial condition or results of operations will be affected. The Company bases its estimates and judgments on historical experience and other assumptions that it believes to be reasonable at the time and under the circumstances, and it evaluates these estimates and judgments on an ongoing basis. The Company refers to accounting estimates and judgments of this type as critical accounting policies, judgments, and estimates. Management believes there have been no material changes during the six months ended February 28, 2009 to the critical accounting policies reported in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in the Company's Form 10-K for the fiscal year ended August 31, 2008.

Forward Looking Information

The part of this Quarterly Report on Form 10-Q captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains certain forward-looking statements, which involve risks and uncertainties. These statements are based on current expectations, estimates and projections about the industries in which we operate, management's beliefs and assumptions made by management. Readers should refer to the discussions under "Forward Looking Information" and "Risk Factors" contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2008 concerning certain factors that could cause the Company's actual results to differ materially from the results anticipated in such forward-looking statements. These discussions and Risk Factors are hereby incorporated by reference into this Quarterly Report.