Statements made in this Quarterly Report on Form 10-Q, including without limitation this Management's Discussion and Analysis of Financial Condition and Operations, other than statements of historical information, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may sometimes be identified by such words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. We believe that it is important to communicate our future expectations to investors. However, these forward-looking statements involve many risks and uncertainties including those identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors. We are under no duty to update any of the forward-looking statements after the date of this Report on Quarterly Form 10-Q to conform these statements to actual results.

Our primary focus is to provide real-time systems solutions, including equipment and software, and services to our customers in the areas of hydrological monitoring and control, meteorological monitoring including airport weather systems, oceanic monitoring and hydrological services. We design, manufacture and market these products and services to a diversified customer base consisting of federal, state, local and foreign governments, universities and engineering and hydropower companies. Our products and services enable these entities to monitor and collect hydrological, meteorological and oceanic data for the management of critical water resources, for early warning of potentially disastrous floods, storms or tsunamis, for the optimization of hydropower plants and for providing real-time weather conditions at airports.

Our key products are the SatLink2 Transmitter/Logger, Xpert/XLite datalogger, Accububble Self-Contained Bubbler, Accubar Pressure Sensor, Tides Systems and XConnect Systems Software. These are the essential components of most systems and are provided to customers as off-the-shelf equipment or as part of a custom system. The SatLink2 is a key product because it functions both as a transmitter and logger. Because of its logger/transmitter functionality, it is a cost-effective solution for small systems that do not require a significant number of sensors or communications options. The Xpert and XLite are more powerful dataloggers that have more logging capability and more communications options than the SatLink2. Our Tides Systems are the only National Ocean Survey approved tides monitoring system in the United States.

International sales, which totaled 42% of revenues for 2008, continue to constitute a more significant portion of our revenues. We expect international revenues to grow as a percentage of our total business. International sales are however difficult to forecast and international awards are frequently delayed due to governmental approvals. Our contract with the Ministry of Energy and Water in Afghanistan could be impacted by security issues. If stations cannot be installed in certain areas of the country due to security issues, this could result in a reduction in the scope of work and in the contract value. Contract backlog on this project at March 31, 2009 was approximately $1,725,000. We are committed to our airport weather systems business which only competes internationally although we compete against established firms with more experience.

Our domestic business is highly dependent upon government business. Contracts and purchase orders with Federal, state and local government agencies represented approximately 46% of our 2008 revenues. Due to economic conditions, we believe that competition in 2009 will continue to be more price-based. We are closely following the federal economic stimulus plan. We believe that we will benefit from increased future spending on water resources projects. We believe that this will result in major customer orders in 2009 and 2010 from our federal and state customers. We are committed to growing our hydrological services however our primary customer in Florida, South Florida Water Management District (SFWMD), has expanded the pool of qualified contractors on all our contracts. We therefore must expand our business outside of SFWMD. We also hope to sell significantly more standard products through our Hydrological Services which was a primary reason for setting up operations in Florida. We have added the Ilex Division through our purchase of Ilex Engineering on December 31, 2008. We believe that Ilex will help us compete better in the GOES data collection services market and global satellite market, both domestically and internationally.

We are committed in our ongoing sales, marketing and research and development activities to sustain and grow our sales and revenues from our products and services. We expect our sales and marketing, research and development and general and administrative expenses to increase moderately in 2009 as compared to 2008.

The Company's discussion and analysis of financial condition and results of operations are based upon the condensed financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized in the United States of America. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, the valuation of inventory, and valuation of deferred tax assets and liabilities, useful lives of intangible assets, warranty obligations and accruals. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a complete description of accounting policies, see Note 1 to our financial statements included in the Company's Form 10-K for the year ended December 31, 2008. There were no significant changes in critical accounting estimates in the first quarter of 2009.

Results of Operations

The following table sets forth for the periods indicated the percentage of total
revenues represented by certain items reflected in our statements of operations:

                                                          Three Months Ended
                                                              March 31,
                                                           2009         2008

        Net sales and revenues                             100.0 %      100.0 %
        Cost of sales and revenues                          61.2         60.9
        Gross profit                                        38.8         39.1

        Selling, general and administrative expenses        28.3         23.1
        Research and Development expenses                   10.0          7.6
        Operating income                                      .5          8.4
        Interest and other income                            4.8          1.1
        Income before income taxes                           5.3          9.5
        Income taxes (benefit)                               2.3          3.0
        Net income                                           3.0 %        6.5 %

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

Net Sales and Revenues

Revenues for the first quarter ended March 31, 2009 decreased 6% to $3,575,031 from $3,819,048 in 2008. Net sales and revenues are broken down between sales of standard products and sales of systems, software and services. Standard products had a net sales and revenue decrease of .6% to $2,118,575 from $2,130,821 in 2008. Net sales and revenues for systems, software and services decreased 15% to $1,458,699 from $1,711,641 in 2008 primarily due to decreased contract revenue from the Company's project with the Afghanistan Ministry of Energy and Water (MEW) to provide 174 hydrological monitoring stations. MEW contract revenue decreased to approximately $159,000 in the first quarter of 2009 as compared to approximately $513,000 in the first quarter of 2008. Intercompany sales reduced net sales and revenues in the amount of $2,242 during the first quarter of 2009 as compared to a reduction of $23,414 in the first quarter of 2008.

Overall domestic revenues increased 1% to $2,149,397 in the first quarter of 2009 versus $2,118,683 in 2008 while international revenues decreased 16% to $1,425,634 in the first quarter of 2009 versus $1,700,365 in the same period in 2008. Customer orders or bookings in the first quarter of 2009 were $2,732,622 as compared to $2,507,580 in the first quarter of 2008.

Cost of sales as a percentage of revenues was 61.2% for the first quarter of 2009 as compared to 60.9% for the same period in 2008. Standard product cost of sales was approximately 48% in the first quarter of 2009 as compared to 42% in 2008. The cost increase was primarily due to an increase warranty costs. Cost of sales for systems, software and services was 80.3% in the first quarter of 2009 as compared to 82.4% in the first quarter of 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $1,010,035 for the first quarter of 2009 from $881,301 for the same period in 2008. Selling, general and administrative expenses as a percentage of revenues increased to 28.3% for the first quarter of 2009 from 23.1% for the same period in 2008 due to the revenue decrease. The increase was primarily due to higher agent commissions in the amount of approximately $77,000 relating to several international projects and higher stock option expenses in the amount of approximately $37,000.

Research and Development Expenses

Research and development expenses increased to $359,089 for the first quarter of 2009 from $290,755 for the same period in 2008. The increase was due to higher product development costs relating to improvements to our radar level recorder and an increase in R&D personnel. Our product development continues to focus on enhancements to our current products including our Satlink2 satellite transmitter/logger, our Xpert and XLite dataloggers, our water level sensors and tides systems. These are the primary components of hydro-meteorological and oceanic monitoring systems. We continue to invest in new products that we believe will improve our competitive position.

Interest and Other Income, Net

Due to our cash position, we did not use our line of credit during the first quarter of 2009. We had interest income for the quarter ended March 31, 2009 of $19,318 as compared to interest income of $40,321 for the quarter ended March 31, 2008. In 2007, we brought a lawsuit against our former Hydrological Services Vice President. We settled the lawsuit in January 2009 in the amount of $150,000. The settlement provided for the immediate payment of $60,000. The remaining balance of $90,000 was secured by a promissory note that requires monthly payments over a five year period including interest at 4%.

Income Taxes

Income tax expense for the quarter ended March 31, 2009 was $83,000 as compared to income tax expense of $116,000 for the quarter ended March 31, 2008. The provisions for income taxes represent an effective income tax rate of 44% in 2009 and an effective income tax rate of 32% in 2008. The increase is due to the exercise of stock options resulting in tax deductible compensation in 2008 while there were no employee stock option exercises in 2009. The increase is also due to an increase in stock-based compensation expense recognized in 2009 for stock options issued and not completely vested.

Cash and cash equivalents were $3,703,079 at March 31, 2009 compared to $3,705,475 at December 31, 2008. Working capital increased slightly to $11,752,269 at March 31, 2009 compared with $11,745,166 at December 31, 2008.

Net cash provided by operating activities was $271,532 for the quarter ended March 31, 2009 as compared to net cash provided by operating activities of $274,231 for the quarter ended March 31, 2008.

Net cash used by investing activities was $256,291 for the quarter ended March 31, 2009 as compared to net cash used by investing activities of $33,132 for the quarter ended March 31, 2008. An increase of $145,128 in restricted cash in the first quarter of 2009 was related to a bid bond issued to the India Meteorological Department. The increase in purchases of property and equipment is due to leasehold improvements relating to our new corporate headquarters that is expected to be completed in May 2009.

Net cash used by financing activities was $2,765 for the quarter ended March 31, 2009 as compared to net cash used by financing activities of $12,035 for the quarter ended March 31, 2008. The decrease was due to a reduction in the amount of term notes payable.

We have a revolving credit facility of $3,000,000 with BB&T. We are permitted to borrow based on accounts receivable and inventory according to pre-established criteria. The credit facility expires on August 5, 2009 and is secured by substantially all assets of the Company. Borrowings bear interest at the bank's prime rate. During the first quarter of 2009, there were no borrowings on the line of credit.

We frequently bid on and enter into international contracts that require bid and performance bonds. At March 31, 2009 and December 31, 2008, a commercial bank had issued standby letters of credit in the amount of $1,010,238 that served as either a bid or performance bond. The amount available to borrow under the line of credit was reduced by these amounts.

Management believes that its existing cash resources, cash flow from operations and short-term borrowings on the existing credit line will provide adequate resources for supporting operations during fiscal 2009. Although there can be no assurance that our revolving credit facility will be renewed, management believes that, if needed, it would be able to find alternative sources of funds on commercially acceptable terms.