Results of Operations
Three Months Ended March 31, 2009 Compared with March 31, 2008

Net sales for the quarter ended March 31, 2009 decreased 4% to $14.7 million compared with $15.3 million in the year ago period. Domestic sales were unchanged for the quarter at $7.6 million while international sales decreased 8% to $7.1 million compared with $7.7 million in the year ago period. The decrease in international sales was wholly attributed to negative currency exchange rate changes in the current quarter as European currencies significantly weakened against the U.S. dollar. Excluding such currency translation effects, international sales would have increased an estimated 4% in the current quarter. Order intake for the quarter ended March 31, 2009 decreased $1.8 million or 11% to $14.1 million compared with $15.9 million in the year ago period. The order intake decrease resulted from lower European orders due to the effects of currency translation and included the cancellation of a $739,000 international order that was placed in the December 31, 2008 quarter. The backlog of unfilled orders was $5.9 million at March 31, 2009 compared with $3.9 million at September 30, 2008.

Gross profit margins for the second quarter of fiscal 2009 increased to 44.6% compared with 44.3% in the year ago period. The small increase reflects an improvement in U.S. margins, which was substantially offset by lower margins in Europe caused by weakening European currencies during the quarter. The Company's Europe based subsidiaries experienced increased costs on U.S. dollar denominated product purchases as a result of such unfavorable currency changes.

Total operating expenses for the second quarter of fiscal 2009 decreased to $5.9 million compared with $6.5 million in the year ago quarter. The reduction was principally the result of lower foreign operating costs due to currency translation as local currencies weakened against the U.S. dollar during the current quarter. Product development expense in the current quarter was $1.4 million compared with $1.5 million in the year ago period.

The Company generated operating income of $619,000 in the second quarter of fiscal 2009 compared with operating income of $325,000 in the year ago period.

Interest income decreased to $14,000 for the second quarter of fiscal 2009 compared with $61,000 in the year ago period due to lower interest yields in the current year period. Interest expense decreased $11,000 from the year ago period as a result of the repayment of bank borrowings in January 2008. Other expense of $14,000 for the second quarter of fiscal 2009 principally represents market losses on securities held.

Income tax expense for the second quarter of fiscal 2009 increased to $230,000 compared with $169,000 in the year ago period as a result of increased taxable income.

As a result of the foregoing, the Company reported net income of $390,000 for the second quarter of fiscal 2009 compared with net income of $206,000 in the year ago period.

Results of Operations
Six Months Ended March 31, 2009 Compared with March 31, 2008

Net sales for the six months ended March 31, 2009 decreased 2% to $30.4 million compared with $31.0 million in the year ago period. Domestic sales decreased 2% to $15.4 million compared with $15.7 million in the year ago period while international sales decreased 2% to $15.0 million compared with $15.3 million in the year ago period. The decrease in international sales was wholly attributed to negative currency exchange rate changes in the current period as European currencies significantly weakened against the U.S. dollar. Excluding such currency translation effects, international sales would have increased an estimated 8% in the current period. Order intake for the first six months of fiscal 2009 increased 1% to $32.4 million compared with $31.9 million in the year ago period. The current period order rate was similarly impacted by negative exchange rate changes in the current period.

Gross profit margins for the first six months of fiscal 2009 increased to 45.1% compared with 44.3% in the year ago period. The increase was principally the result of improved U.S. margins, offset in part by lower margins in Europe caused by weakening European currencies during the period. The Company's European based subsidiaries experienced increased costs on U.S. dollar denominated product purchases as a result of such unfavorable currency changes.

Total operating expenses for the first six months of fiscal 2009 decreased to $12.3 million compared with $12.9 million in the year ago period principally as a result of lower European subsidiary operating costs due to currency translation. The Company continued to invest in new product development in the current year period, incurring $2.9 million of engineering and development costs compared with the same amount in the year ago period.

The Company generated operating income of $1.4 million in the first six months of fiscal 2009 compared with $841,000 in the year ago period.

Interest income decreased to $52,000 for the first six months of fiscal 2009 compared with $149,000 in the year ago period due to lower interest yields in the current year period. Interest expense decreased $43,000 from the year ago period as a result of the repayment of bank borrowings in January 2008. Other expense of $59,000 for the first six months of fiscal 2009 principally represents market losses on securities held.

Income tax expense for the first six months of fiscal 2009 increased to $530,000 compared with $397,000 in the year ago period as a result of increased taxable income.

As a result of the foregoing, the Company reported net income of $898,000 for the first six months of fiscal 2009 compared with net income of $551,000 in the year ago period.

Liquidity and Capital Resources

Net cash provided by operating activities was $2.6 million for the first six months of fiscal 2009, which included $898,000 of net income and $848,000 of non-cash charges for the period. In addition, net cash provided by a $3.4 million decrease in accounts receivable resulting from lower sales was offset in part by a $1.1 million increase in inventories, a $560,000 decrease in accounts payable and a $673,000 decrease in accrued compensation and employee benefits. Net cash used in investing activities was $188,000 for the first six months of fiscal 2009 due principally to $245,000 of general capital expenditures offset in part by a $56,000 decrease in marketable securities. Net cash used in financing activities was $779,000 for the first six months of fiscal 2009, which included $838,000 of common stock repurchases offset in part by $59,000 of proceeds received from the exercise of stock options. As a result of the foregoing, cash increased by $1.7 million for the first six months of fiscal 2009 after the effect of exchange rate changes on the cash position of the Company.

The following is a summary of the Company's debt and material lease obligations as of March 31, 2009:

Payments Due          Debt             Lease
 By Period         Repayments       Commitments        Total
Less than 1 year   $         -     $     535,000     $ 535,000
1-3 years                    -           371,000       371,000
3-5 years                    -                 -             -
 Total             $         -     $     906,000     $ 906,000

The Company believes that it will have sufficient cash to meet its anticipated operating costs and capital expenditure requirements for at least the next twelve months.

The Company does not have any off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a material effect on the Company's financial condition, results of operations, liquidity, capital expenditures or capital resources.

The Company is one of several defendants in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. in May 2003 in the United States District Court for the Western District of Tennessee. The alleged infringement by the Company relates to its camera dome systems and other products that represent significant sales to the Company. Among other things, the suit seeks past and enhanced damages, injunctive relief and attorney's fees. In January 2006, the Company received the plaintiff's claim for past damages through December 31, 2005 that approximated $11.7 million plus pre-judgment interest. The Company and its outside patent counsel believe that the complaint against the Company is without merit. The Company is vigorously defending itself and is a party to a joint defense with certain other named defendants.

In January 2005, the Company petitioned the U.S. Patent and Trademark Office (USPTO) to reexamine the plaintiff's patent, believing it to be invalid. In April 2006, the USPTO issued a non-final office action rejecting all of the plaintiff's patent claims asserted against the Company citing the existence of prior art of the Company and another defendant. On June 30, 2006, the Federal District Court granted the defendants' motion for continuance (delay) of the trial, pending the outcome of the USPTO's reexamination proceedings. In February 2007, the USPTO issued a Final Rejection of the six claims in the plaintiff's patent asserted against the Company, which was reaffirmed in June 2007 after the plaintiff filed a response with the USPTO requesting reconsideration of its Final Rejection. The plaintiff has appealed the examiner's decision to the USPTO Board of Patent Appeals and Interferences and has an additional appeal available to it thereafter in the Court of Appeals for the Federal Circuit.

Critical Accounting Policies

The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its September 30, 2008 Annual Report on Form 10-K. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured. As it relates to product sales, revenue is generally recognized when products are sold and title is passed to the customer. Shipping and handling costs are included in cost of sales. Advance service billings under equipment maintenance agreements are deferred and recognized as revenues on a pro rata basis over the term of the service agreements. The Company evaluates multiple-element revenue arrangements for separate units of accounting pursuant to EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables", and follows appropriate revenue recognition policies for each separate unit. Elements are considered separate units of accounting provided that (i) the delivered item has stand-alone value to the customer, (ii) there is objective and reliable evidence of the fair value of the undelivered item, and (iii) if a general right of return exists relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially within the control of the Company. As applied to the Company, under arrangements involving the sale of product and the provision of services, product sales are recognized as revenue when the products are sold and title is passed to the customer, and service revenue is recognized as services are performed. For products that include more than incidental software, and for separate licenses of the Company's software products, the Company recognizes revenue in accordance with the provisions of Statement of Position 97-2, "Software Revenue Recognition", as amended.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write-downs may be required. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The Company assesses the recoverability of the carrying value of its long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount.

The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible.

The Company is subject to proceedings, lawsuits and other claims related to labor, product and other matters. The Company assesses the likelihood of an adverse judgment or outcomes for these matters, as well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis. The required reserves may change in the future due to new developments.

Recent Accounting Pronouncements

In September 2006, the FASB issued Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurement," which defines fair value, establishes a framework for measuring fair value and expands disclosures regarding assets and liabilities measured at fair value. In February 2008, the FASB issued FASB Staff Position (FSP) 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" (FSP 157-1) and FSP 157-2, "Effective Date of FASB Statement No. 157" (FSP 157-2). FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the Company's first quarter of fiscal 2010. The adoption of the provisions related to financial assets and financial liabilities were effective for the Company's first quarter of fiscal 2009 and did not have a material impact on its consolidated financial position, results of operations or cash flows. The Company does not expect that the adoption of the remaining provisions of SFAS 157 will have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not yet evaluated the impact, if any, of adopting this pronouncement.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133" ("SFAS 161"). SFAS 161 will change the disclosure requirements for derivative instruments and hedging activities. Entities will be required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. SFAS 161 was effective for the Company's second quarter of fiscal 2009 and did not have a material impact on its consolidated financial position, results of operations or cash flows.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Statements in this Report on Form 10-Q and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the captions "Results of Operations", "Liquidity and Capital Resources" and "Critical Accounting Policies" are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 that should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company also assumes no obligation to update its forward-looking statements or to advise of changes in the assumptions and factors on which they are based.