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 continuing difficult economic conditions and its negative impact on infrastructure spending as well as the events that continue to adversely affect the credit markets, management has placed increased emphasis on reducing costs and monitoring the risks associated with the current environment, particularly the collectibility of accounts receivable and our liquidity. If the economic environment continues to deteriorate, we could experience difficulties due to the financial viability of certain of our customers and suppliers. Increased costs and imposition of more stringent terms and conditions by our suppliers as well as delays in payment and higher default rates by our customers could affect our financial performance. In addition, the volatility of our stock price and declines in our market capitalization could put pressure on the carrying value of goodwill in our Protect and Direct segment and other long-lived assets if these conditions persist for an extended time. See Significant Accounting Policies and Critical Estimates for further information. The holders of our $40,000,000 of convertible notes may require us to repurchase the notes in cash at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any, as early as February 15, 2010. If that occurs, there can be no assurance that we will be able to refinance this debt on a timely basis and on satisfactory terms, if at all. Management will continue to monitor the risks associated with the current economic environment and their impact on our results. See FINANCIAL CONDITION for further information.

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 first quarter of fiscal 2009, 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 reduce the amount outstanding against our revolving credit facility.

RESULTS OF OPERATIONS

Overall, we saw decreased sales and profitability for the first nine months and the third quarter of fiscal 2009 compared with the same periods last year, primarily due to the effects of the current economic downturn on infrastructure spending. Our results for the quarter reflect improvement in our business over the second quarter of fiscal 2009. For the current third quarter, sales decreased 3% compared to the third quarter of last year due to decreased domestic sales in the Protect and Direct segment, which were partially offset by increased international sales in both segments as well as increased domestic sales in the Inform segment. International sales for the third quarter of fiscal 2009 increased 41% compared to the third quarter last year due to increased sales across most regions. Domestic sales decreased 14% compared to the third quarter of last year. Sales in our Protect and Direct segment decreased 9% while sales in our Inform segment increased 15% compared to the third quarter of last year. The decreased sales volume in the quarter resulted in an operating loss for the Protect and Direct segment for the quarter. Excluding a $9,246,000 non-cash asset impairment charge recorded within the Inform segment, the segment recorded operating profit for the current quarter. See FUTURE OUTLOOK for further information.

                                          Three Months Ended                  Nine Months Ended
                                              March 31,                           March 31,

                                       2009                2008            2009                2008

Revenues by Segment:
Protect and Direct                 $  16,241,000       $ 17,753,000    $  51,244,000       $ 56,815,000
Inform                                 5,864,000          5,116,000       16,057,000         16,437,000

                                   $  22,105,000       $ 22,869,000    $  67,301,000       $ 73,252,000

Geographic Revenues:
Domestic                           $  15,997,000       $ 18,543,000    $  47,787,000       $ 56,922,000
International                          6,108,000          4,326,000       19,514,000         16,330,000

                                   $  22,105,000       $ 22,869,000    $  67,301,000       $ 73,252,000


Operating Income (Loss) by
Segment:
Protect and Direct                 $    (509,000 )     $  1,383,000    $   1,388,000       $  8,383,000
Inform                                (9,067,000 ) (1)       12,000       (8,992,000 ) (1)    1,336,000
Unallocated Corporate                 (1,580,000 )       (1,718,000 )     (5,629,000 )       (5,332,000 )

                                   $ (11,156,000 )     $   (323,000 )  $ (13,233,000 )     $  4,387,000


Gross profit percentage                     25.6 %             31.3 %           28.2 %             34.9 %


Selling and administrative
expenses as a percentage of
sales                                       29.7 %             28.8 %           28.9 %             25.3 %


Diluted earnings (loss) from
continuing operations per share    $       (0.93 )     $      (0.07 )  $       (1.19 )     $       0.10

(1) Includes a $9,246,000 non-cash asset impairment charge.

Revenues

Our net sales for the third quarter of fiscal 2009 decreased $764,000, or 3%, to $22,105,000 from $22,869,000 for the third quarter last year, with decreases in Protect and Direct segment domestic sales partially offset by increased international sales in both segments and increased domestic sales in the Inform segment. The decrease in domestic sales for the Protect and Direct segment in the quarter was due to continuing softness in the domestic market for our Protect and Direct products.

Our net sales for the first nine months of fiscal 2009 decreased $5,951,000, or 8%, to $67,301,000 from $73,252,000 for the same period last year with sales decreases in both the Protect and Direct segment and the Inform segment. Increased international sales in both segments were partially offset by decreased domestic sales primarily due to the effects of the current economic downturn on infrastructure spending.

International sales for the first nine months of fiscal 2009 increased $3,184,000, or 19%, to $19,514,000, compared to $16,330,000 for the same period last year, with increased sales in both segments. International sales for the Protect and Direct segment increased 20% over the first nine months of last year due to increased sales Canada, Europe, Latin America and the Mideast/Africa region. Protect and Direct sales in Asia decreased over the prior year period primarily because approximately $1,000,000 in sales in China during the second quarter last year were not repeated in fiscal 2009. International sales for the Inform segment increased 15% primarily due to increased sales in Latin America and the Asia Pacific region in the first nine months of fiscal 2009. Domestic sales for the first nine months of fiscal 2009 decreased 16% to $47,787,000 from $56,922,000 due to decreased sales in both segments

Protect and Direct - Net sales for the Protect and Direct segment for the third quarter of fiscal 2009 decreased 9% to $16,241,000 from $17,753,000 for the third quarter last year with decreases in domestic sales offsetting increased international sales. Decreased sales of permanent crash cushions, parts, Triton® water-filled barriers and delineators were partially offset by increased sales of truck mounted attenuators, barrels and ABC terminals. We continue to see strong demand for ABC terminals in the international markets and particularly in Europe.

Net sales for the Protect and Direct segment for the first nine months of fiscal 2009 decreased 10% to $51,244,000 from $56,815,000 for the same period last year. Increased international sales were offset by decreased domestic sales in the period. The decrease in sales for the first nine months of this year was across most major product lines, particularly truck mounted attenuators and permanent crash cushions, which were offset somewhat by increased sales of ABC terminals and barrels.

Inform - Net sales for the Inform segment for the third quarter of fiscal 2009 increased 15%, or $748,000, to $5,864,000 from $5,116,000 for the third quarter last year. The increase in sales in the current third quarter compared to the third quarter of fiscal 2008 was due to increases across most major product lines.

Net sales for the Inform segment for the first nine months of fiscal 2009 decreased 2%, or $380,000, to $16,057,000 from $16,437,000 for the same period last year. Increased international sales in the current nine-month period were offset by decreased domestic sales. Increased sales of traffic and weather sensors in the first nine months of this year were more than offset by decreased sales of highway advisory radio products.

Gross Profit Margin

Our gross profit margin for the third quarter of fiscal 2009 was 25.6% compared to 31.3% for the third quarter last year. The gross margin for the Protect and Direct segment declined due to manufacturing inefficiencies related to the lower sales volume and due to unfavorable product sales mix with higher sales of ABC terminals, which have lower gross margins than some other product lines. The gross margin for the Inform segment improved slightly due to volume efficiencies.

Selling and Administrative Expenses

Selling and administrative expenses for the third quarter of fiscal 2009 decreased $33,000, or 1%, to $6,564,000 from $6,597,000 for the third quarter last year. Decreased selling and administrative expenses related to headcount reductions and other cost-savings initiatives were largely offset by increased bad debt expense and legal costs. Selling and administrative expenses increased as a percentage of sales to 29.7% for the third quarter of 2009 from 28.8%.

Selling and administrative expenses for the first nine months of fiscal 2009 increased $856,000, or 5%, to $19,419,000 from $18,563,000 for the same period last year. Selling and administrative expenses in the Protect and Direct and the Inform segments increased due to higher bad debt expenses in both segments and to increased legal and marketing promotion costs in the Protect and Direct segment. Selling and administrative expenses increased as a percentage of sales to 28.9% for the first nine months of 2009 from 25.3% last year.

Research and Development

Research and development expenditures for the third quarter of fiscal 2009 decreased $201,000, or 23%, to $674,000 from $875,000 for the same period last year due to decreases in both segments, primarily caused by headcount reductions.

Research and development expenditures for the nine months of fiscal 2009 decreased $209,000, or 8%, to $2,394,000 from $2,603,000 for the same period last year due to decreases in both segments, primarily caused by headcount reductions.

Severance Costs

We recorded $329,000 in severance costs in the third quarter of fiscal 2009 related to headcount reductions in both segments. Of this amount, the Protect and Direct segment recorded $262,000 and the Inform segment recorded $67,000.

We recorded $1,172,000 in severance costs in the first nine months of fiscal 2009 related to the retirement of our former chief executive officer and a senior executive within the Protect and Direct segment as well as to headcount reductions in both segments. Of this amount, the Protect and Direct segment recorded $323,000, the Inform segment recorded $67,000 and $782,000 was recorded as unallocated corporate expenses.

Asset Impairment Charge

We performed an interim asset impairment assessment as our common stock price remained depressed during the current third quarter, causing our market capitalization to remain below our carrying value for a sustained period and also due to the extent and duration the current economic conditions have affected our operating results. We recorded a non-cash asset impairment charge of $9,246,000 or $6,877,000 net of income taxes, in the third quarter representing the remaining portion of the goodwill recorded for the Inform segment.

The operating loss for the third quarter of fiscal 2009 was $11,156,000, compared to an operating loss of $323,000 for the third quarter of fiscal 2008. For the third quarter of fiscal 2009, the operating loss for the Protect and Direct Group was $509,000, compared to operating profit of $1,383,000 in the same period last year, primarily due to the lower sales volume and unfavorable product sales mix. The operating loss for the Inform segment was $9,067,000 including a $9,246,000 non-cash asset impairment charge compared to operating profit of $12,000 for the third quarter of last year. The operating loss for the third quarter of fiscal 2009 also included severance costs of $329,000.

The operating loss for the first nine months of fiscal 2009 was $13,233,000, compared to operating profit of $4,387,000 for the first nine months of fiscal 2008. For the first nine months of fiscal 2009, operating profit for the Protect and Direct Group was $1,388,000, compared to operating profit of $8,383,000 in the same period last year, primarily due to the lower sales volume and unfavorable product sales mix. The operating loss for the Inform segment was $8,992,000 including a $9,246,000 non-cash asset impairment charge compared to operating profit of $1,336,000 for the first nine months of last year. The operating loss for the first nine months of fiscal 2009 also included severance costs of $1,172,000.

Interest Expense

Interest expense for the third quarter of fiscal 2009 decreased $220,000, or 21% to $848,000 from $1,068,000 for the third quarter last year, primarily due to the lower level of revolving debt outstanding and also to the lower interest rates on our revolving debt. The interest rate on our bank facility is based on LIBOR or the British Bankers Association LIBOR, plus a margin. Our overall weighted average interest rate was 6.8% as of March 31, 2009, primarily due to the 7% interest rate on our $40,000,000 in convertible debt.

Interest expense for the first nine months of fiscal 2009 decreased to $2,630,000 from $3,306,000 for the same period last year. The decrease was primarily due to the lower level of revolving debt outstanding and to the lower interest rates on our revolving debt.

Interest Income

Interest income for the third quarter of fiscal 2008 was $336,000, which included interest earned on a $2.6 million federal income tax refund received during the third quarter of last year.

Income Tax Provision (Benefit)

The income tax benefit for the third quarter of fiscal 2009 was $3,414,000 representing a 28% effective income tax rate. An income tax benefit of $2,369,000 was recorded on the asset impairment charge of $9,246,000. The income tax benefit for the third quarter of fiscal 2008 was $400,000, representing a 38% effective income tax rate.

The income tax benefit for the first nine months of fiscal 2009 was $4,880,000, representing a 31% effective income tax rate. This compares to a provision of $539,000 for the same period last year, representing a 38% effective income tax rate.

Earnings (Loss) from Continuing Operations

The loss from continuing operations for the third quarter of fiscal 2009 was $8,583,000, or $0.93 per diluted share, compared to earnings from continuing operations of $655,000, or $0.07 per diluted share, for the third quarter last year. The current quarter loss includes the asset impairment charge of $6,877,000, net of income tax benefit, or $0.74 per diluted share. The current quarter loss also includes severance costs of $204,000, net of income tax benefit, or $0.02 per diluted share. Last year's third quarter earnings included interest income on a tax refund of $208,000, net of income tax provision, or $0.02 per diluted share.

The loss from continuing operations for the first nine months of fiscal 2009 was $10,976,000, or $1.19 per diluted share, compared to earnings from continuing operations of $880,000, or $0.10 per diluted share, for the first nine months last year. The current nine-month loss includes the asset impairment charge of $6,877,000, net of income tax benefit, or $0.74 per diluted share. The current nine-month loss also includes severance costs of $727,000, net of income tax benefit, or $0.08 per diluted share. Last year's nine-month earnings included interest income on a tax refund of $208,000, net of income tax provision, or $0.02 per diluted share.

The loss from discontinued operations, net of income taxes, for the third quarter of fiscal 2008 was $509,000, or $0.06 per diluted share.

The loss from discontinued operations, net of income taxes, for the first nine months of fiscal 2009 was $758,000, or $0.08 per diluted share, compared to a net loss of $815,000, or $0.09 per diluted share, for the same period last year.

Net Earnings (Loss)

The net loss for the third quarter of fiscal 2009 was $8,583,000, or $0.93 per diluted share, compared to a net loss of $1,164,000, or $0.13 per diluted share, for the third quarter last year.

The net loss for the first nine months of fiscal 2009 was $11,734,000, or $1.27 per diluted share, compared to net earnings of $65,000, or $0.01 per diluted share, for the same period 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 $128,000 as of March 31, 2009. As of March 31, 2009, we had $2,850,000 outstanding against our bank credit facility and $40,000,000 in 7% Convertible Senior Subordinated Notes due February 2025 (the "Convertible Notes").

Our current secured bank credit agreement with our senior bank (the "Credit Agreement") includes both fixed and floating interest rate options, at the LIBOR and British Bankers Association LIBOR rate, plus a margin. The Credit Agreement also contains affirmative and negative covenants including requirements that we meet certain consolidated financial criteria. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in such agreements.

We were in violation of certain financial covenants as of the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009 and we received waivers from our senior bank for those violations. Accordingly, we amended the Credit Agreement with an amendment dated November 7, 2008. As of December 31, 2008, we were in violation of certain financial covenants, for which we received a waiver and an amendment dated February 9, 2009. This amendment to the Credit Agreement reduced the amount of the revolver commitment from $40 million to $15 million, changed the expiration date from February 2010 to November 1, 2009, prohibited payments for dividends and the purchase of our common stock for the treasury and increased the interest rate margin and certain fees. As of March 31, 2009, we were in violation of certain financial covenants, for which we received a waiver and an amendment dated May 7, 2009. This amendment modified several financial covenants which effectively eliminated certain financial ratio covenants and added a monthly borrowing base formula to restrict borrowings based on eligible accounts receivable, inventory and fixed assets as well as a minimum earnings covenant. We believe this amendment reduces the possibility that we may violate financial covenants through the term of the Credit Agreement.

The holders of our $40,000,000 of Convertible Notes may require us to repurchase the notes in cash at a price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest, if any, as early as February 15, 2010. In connection with the potential put of the Notes to the Company, during the quarter we hired an advisor to explore financing alternatives. We have also taken several actions to reduce our cost structure and we continue to investigate other potential cost savings alternatives. To conserve cash, we have suspended our semiannual dividend and we have reduced capital expenditures. However, even with these actions, given the continued weakness in the economy and in the credit markets, there can be no assurance that we can obtain the necessary capital on satisfactory terms to pay the Convertible Note holders, should they require payment in February 2010.

Our ability to remain in compliance with the covenants of the Credit Agreement, as amended, and to modify our capital structure is dependent upon our future performance and may be affected in part by events beyond our control, including the current economic downturn. Reduced cash flows from operations, regardless of cause, may make it more difficult to comply with our bank covenants and to obtain an extension of our Credit Agreement. Continuing uncertainty in the credit markets may affect our ability to access those markets and may increase costs associated with borrowing and issuing debt instruments. There are currently no default interest provisions in connection with a default on our Credit Agreement. The provisions of our Credit Agreement and Convertible Notes each include cross-default provisions such that a default on any individual payment obligation greater than $5 million is a default under both agreements.

Although the variable interest rates under our revolving credit facility have been volatile due to the current credit environment, the financial effect on us has not been significant as the amount outstanding against the facility was only $2,850,000 as of March 31, 2009. Currently, we do not believe that our operating cash flow needs will require us to significantly increase our bank borrowings in the near term. Our $40 million of 7 % Convertible Notes accounted for the majority of our $42.9 million in outstanding debt as of March 31, 2009. However, given the potential put of the Notes to the Company along with the continued weakness in the economy and in the credit markets, there can be no assurance that we can obtain the necessary capital on satisfactory terms to pay the Convertible Note holders, should they require payment in February 2010.

Cash Flows

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