Results of Operations, Second Quarter (January 1, 2009 through March 31, 2009) Fiscal 2009 Compared to Second Quarter Fiscal 2008

The Company has determined that it has two reportable segments: 1) indicators and gauges and 2) automotive related diagnostic tools and equipment. The indicators and gauges segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business, military and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to original equipment manufacturers, servicers of locomotives and operators of railroad equipment. Revenue in this segment was $496,566and $508,313 for the second quarter of fiscal 2009 and fiscal 2008, respectively and $952,156and $940,676 for the first six months of fiscal 2009 and fiscal 2008, respectively.

The automotive diagnostic tools and equipment segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Also included in this segment are fastening control products used primarily by large manufacturers to monitor and control the "nut running process" (the controlled tightening of threaded fasteners)in assembly plants. This equipment provides high quality joint control and documentation. Revenue in this segment was $838,490and $1,191,155 for the second quarter of fiscal 2009 and fiscal 2008, respectively, and $1,541,963and $8,000,204 for the first six months of fiscal 2009 and fiscal 2008, respectively. The decrease was due primarily to the completion of the California Evaporative Emissions Testing Program during fiscal 2008 and the negative effects of the current economic crisis on all of the Company's markets.

Product sales for the quarter ended March 31, 2009 were $1,192,941 versus $1,536,592 for the quarter ended March 31, 2008. The 22% decrease in product sales during the current quarter of approximately $344,000 was volume related due primarily to decreased sales of automotive diagnostic products, primarily, emissions products of approximately $217,000.Sales of diagnostic products to OEM's and aftermarket products decreased by approximately $29,000 and $114,000 respectively. Indicator products increased by approximately $16,000. Management continues to be concerned about the current economic conditions in the markets the Company serves and anticipates product sales for the third quarter of fiscal 2009 to increase only slightly above the sales levels from the second quarter.

Service sales for the quarter ended March 31, 2009 were $142,115 versus $162,876 for the quarter ended March 31, 2008. The decrease was volume related and due primarily to a lower sales volume for chargeable repairs. The current level of service sales related to product repair sales is expected to continue for the balance of the fiscal year.

Cost of product sold in the second quarter of fiscal 2009 was $866,161 (72.6% of product sales) as compared to $1,076,347 (70.0% of product sales) in the second quarter of fiscal 2008. The dollar decrease in the cost of product sold was due primarily to a lower sales volume. The increase in the cost of product sold percentage was due primarily to lower plant utilization and a change in product
mix. The current cost of product sold percentage is expected to decrease moderatelyduring the balance of the fiscal year due to cost cutting measures implemented January 1, 2009 along with additional personnel and wage reductions and other cost containment measures implemented May 1, 2009 and slightly increased product sales. For the quarter ended March 31, 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009.

Cost of service sold in the second quarter of fiscal 2009 was $99,255 (69.8% of service sales) as compared to $185,037 (113.6% of service sales) in the second quarter of fiscal 2008. The dollar and percentage decrease was due primarily to a lower volume of warranty repairs, price increases for certain services, and cost reductions. The current cost of services sold percentage is anticipatedto continue for the balance of the fiscal year due to price adjustments and cost cutting measures implemented January 1, 2009 along with additional personnel and wage reductions and other cost containment measures implemented May 1, 2009. For the quarter ended March 31, 2009 the Company achieved the savings that were anticipatedfrom the cost cutting measures implemented in January 2009.

Product development expenses were $337,574 in the second quarter of fiscal 2009 (28.3% of product sales) as compared to $507,033 (33.0% of product sales) in the second quarter of fiscal 2008. The dollar and percentage decrease was due primarily to decreased labor costs and a decrease in research and experimental material of approximately $150,000 and $11,000 respectively. The current level of product development expenses is expected to decrease significantly for the balance of the fiscal year due to cost cutting measures and wage reductionsimplemented January 1, 2009 along with additional personnel reductions and further cost containment measures implemented May 1, 2009. For the quarter ended March 31, 2009 the Company achieved the savings that were anticipatedfrom the cost cutting measures implemented in January 2009. Management believes the current resources will be sufficient to maintain current product development commitments and continue to develop some new products for both OEM and Aftermarket customers.

Marketing and administrative expenses were$640,840 (48.0% of total sales)in the second quarter of 2009 versus $712,380 (41.9% of total sales) for the same period a year ago.The percentage increase was due primarily to the lower level of total sales for the current fiscal quarter. Marketing expenses were approximately $335,000in the second quarter of fiscal 2009 versus $461,000 for the same period a year ago.Within marketing expenses, labor costs, travel expense, industry association dues and outside consulting expenses decreased by approximately $109,000, $7,000, $11,000 and 2,000 respectively. These decreases were offset in part by an increase in commissions and promotion of approximately $6,000 and $2,000respectively.The dollar decrease in expenses for the current fiscal quarter was due primarily to cost cutting measures implemented January 1, 2009 in the form of personnel and wage reductions along with other cost containment measures. Administrative expenses were approximately $306,000in the second quarter of fiscal 2009 versus $252,000 for the same period a year ago.The prior year benefited from the reversal of a previously recorded $187,000 bonus provision. The current quarter benefited from decreases in labor costs, professional fees, director fees and depreciation of approximately $86,000, $8,000, $16,000 and $6,000 respectively.The current level of marketing and administrative expenses is expected to decrease significantly for the balance of the fiscal year due to cost cutting measures and wage reductionsimplemented January 1, 2009 along with additional personnel reductions and other cost containment measures implemented May 1, 2009. For the quarter ended March 31, 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009.

Interest expense was $948 in the second quarter of fiscal 2009 which compares with $3,004 in the second quarter of fiscal 2008. The decrease was due to interest charges on the lower credit facility unused portion during the second quarter of fiscal 2009. The credit facility was reduced from $2,500,000 to $1,000,000 on February 1, 2009. The current level of interest expense is expected to increase moderately for the third and fourth quarters of the year due to expected financing requirements of anticipated orders.

Other income was $9,669 in the second quarter of fiscal 2009 which compares with $37,477 in the second quarter of fiscal 2008. Other income consists primarily of interest income on cash and cash equivalents invested and the proceeds from the sale of scrap metal shavings. The decrease is due primarily to a lower level of cash available for investment during the current period.

Income taxes in the second quarter of fiscal 2009 was $1,645,200 which compares with a recovery of income taxes of $272,400 in the second quarter of fiscal 2008. Management recorded a valuation allowance on the entire balance of deferred tax assets in the amount of $1,645,200 due to continued losses during the past three quarters, the current economic uncertainties, the negative effects of the current economic crisis on all of the Company's markets and concern that a more likely than not expiration of the Company's net operating loss and research and development credit carryforwards could occur before they can be used. During fiscal 2008 the recovery of income taxes was recorded at an effective tax rate of 37%.

The net loss in the second quarter of fiscal 2009 was $2,245,253 which compares with a net loss of $474,456 in the second quarter of fiscal 2008. The net loss for the current quarter was primarily the result of the increase in the valuation allowance of $1,645,200 and a lower sales volume.

Unshipped customer orders as of March 31, 2009 were $755,000 versus $957,000 at March 31, 2008. The decrease was due primarily to decreased orders in automotive diagnostic products of approximately $104,000, specifically, $186,000 for diagnostic products to the aftermarket which include emissions products offset in part by an increase in orders for automotive diagnostic products to automotive OEM'sof approximately $82,000. In addition, indicator products decreased by approximately $98,000. The Company anticipates that most of the current backlog will be shipped in the last half of fiscal 2009.

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

Product sales for the six months ended March 31, 2009 were $2,256,772 versus $8,664,848 for the same period in fiscal 2008. The decrease in product sales during the first six months of the current fiscal year of approximately$6,408,000 was volume related due primarily to decreased sales of automotive diagnostic products,primarily, emission products of approximately $5,883,000.Sales of other automotive diagnostic products, primarily, OEM products and non-emission aftermarket products declined by approximately $183,000 and $393,000, respectively.Sales of indicator products increased by approximately $51,000. Management anticipates product sales for the third quarter to increase slightly above the sales levels of the current quarterand significantly in the fourth quarter of fiscal 2009 due to two anticipated large orders.

Service sales for the six months ended March 31, 2009 were $237,347 compared with $276,032 for the same period in fiscal 2008. The decrease was volume related and due primarily to a lower sales volume for chargeable repairs. The current level of service sales related to product repair sales is expected to continue for the balance of the fiscal year.

Cost of product sold was $1,653,348 or (73.3% of product sales) compared to $4,900,003 (56.6% of product sales) for the six months ended March 31, 2008. The dollar decrease in the cost of product sold was due primarily to a lower sales volume and expense reduction measures implemented in January 2009.The increase in the cost of product sold percentage was due primarily to lower plant utilization and a change in product mix. The current cost of product sold percentage is expected to decrease moderately during the balance of the fiscal year due to cost cutting measures and wage reductionsimplemented January 1, 2009 along with additional personnel reductions and other cost containment measures implemented May 1, 2009 and increased product sales. For the six month period ended March 31, 2009 the Company achieved the savings that were anticipatedfrom the cost cutting measures implemented in January 2009.

Cost of service sold was $188,680 (79.5% of service sales) compared with $288,714 (105% of service sales) for the six months ended March 31, 2008. The dollar and percentage decrease was due primarily to a lower volume of warranty repairs,price increases for certain services,and expense reduction measures implemented in January 2009. The cost of services sold percentage is expected to continue for the balance of the fiscal year due to price adjustments and cost cutting measures and wage reductions implemented January 1, 2009 along with additional personnel reductions and other cost containment measures implemented May 1, 2009. For the six month period ended March 31, 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009.

Product development expenses were $788,043 (34.9%of product sales) compared to $971,763 (11.2% of product sales) for the six months ended March 31, 2008. The dollar decrease was due primarily to decreased labor costs and research and experimental material of approximately $153,000 and $21,000 respectively. The percentage increase was due to lower product sales during the first six months of the current fiscal year. The current level of product development expenditures is expected to decrease significantly for the balance of the fiscal year due to cost cutting measures and wage reductionsimplemented January 1, 2009 along with additional personnel reductions and other cost containment measures implemented May 1, 2009. For the six month period ended March 31, 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009.Management believes the current resources will be sufficient to maintain current product development commitments and continue to develop some new products for both OEM and Aftermarket customers.

Marketing and administrative expenses were $1,431,817 for the six months ended March 31, 2009 (57.4% of total sales) versus $1,825,563 (20.4% of total sales) for the six months ended March 31, 2008. The percentage increase was primarily due to the decrease in the level of total sales during the first six months of the current fiscal year. Marketing expenses were approximately $758,000 during the first six months of the current fiscal year versus $949,000 for the same period a year ago. Within marketing expenses, decreases were in labor costs, commissions, royalties, industry association dues, travel expense, promotion expense, collection expense and advertising of approximately $108,000, $7,000, $4,000, $11,000, $15,000, $21,000, $4,000 and $9,000 respectively. Administrative expenses were approximately $674,000 during the first six months of the current fiscal year versus $877,000 for the same period a year ago. The dollar decrease was due primarily to decreases in labor costs, bonus provision, professional fees, directors fees and depreciation of approximately $89,000, $37,000, $12,000, $25,000 and $12,000 respectively. The current level of marketing and administrative expenses is expected to decrease significantly for the balance of the fiscal year due to cost cutting measures and wage reductionsimplemented January 1, 2009 along with additional personnel reductions and other cost containment measures implemented May 1, 2009. For the six month period ended March 31, 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009.

Interest expense was $2,545 for the six months ended March 31, 2009, and $6,790 for the same period in 2008. The decrease was primarily due to no short-term borrowing during the current fiscal year and interest charges on the lower credit facility unused portion during the second quarter of fiscal 2009. The credit facility was reduced from $2,500,000 to $1,000,000 on February 1, 2009. The current level of interest expense is expected to increase moderately for the third and fourth quarters of the year due to expected financing requirements of anticipated orders.

Other income of $24,908 for the six months ended March 31, 2009 compares with other income of $58,986 in the same period last year. Other income consists primarily of interest income on cash and cash equivalents invested and the proceeds from the sale of scrap metal shavings. The decrease is due primarily to a lower level of cash available for investment during the current six month period. The current level of other income is expected to decrease for the remainder of fiscal 2009 due to a lower level of cash and cash equivalents invested in interest bearing accounts.

Income taxes during the first six months of fiscal 2009 was $1,845,200 which compares with income taxes of $372,600 in the first six months of fiscal 2008. Management recorded a valuation allowance on the entire balance of deferred tax assets in the amount of $1,845,200 due to continued losses during the past three quarters, the current economic uncertainties, the negative effects of the current economic crisis on all of the Company's markets and concern that a more likely than not expiration of the Company's net operating loss and research and development credit carryforwards could occur before they can be used.During fiscal 2008 income taxes were recorded at an effective tax rate of 37%.

The net loss for the six months ended March 31, 2009 was $3,390,606 compared with net income of $634,433 for the six months ended March 31, 2008. The net loss for the first half of fiscal 2009 was primarily the result of the increase in the valuation allowance of $1,645,200and a lower sales volume. Net income for the prior year was primarily the result of a higher sales volume due to the California Evaporative Emissions Testing Program.

In December of 2008 management took steps to reduce non-direct product related expenses throughout the Company in response to the economic downturn and the uncertainty in the markets the Company serves. The steps included a substantial reduction in personnel, wage reductions for all personnel and expenditure restrictions in most aspects of the Company's operations. Management took additional steps in April 2009 and made additional reductions in personnel throughout the Company due to the continued decline in sales to the markets the Company serves. The expected annual cost savings of approximately $3,080,000 takes into consideration possible increases in other expenses that may occur. The savings are expected to be realized in equal amounts per month with similar impact on both future earnings and cash flows. Beginning in January 2009 through April 2009 the monthly savings are expected to be approximately $191,000 per month. During the period of May 2009 through September 2009 the monthly savings are expected to be approximately $257,000 per month. Major expense categories impacted are as follows:

Applicable to Manufacturing
  Production Overhead (Wages)   $866,000
Product Development              785,000
Marketing and Administration   1,429,000
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Annual Total                  $3,080,000
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For the quarter ended March 31, 2009 the Company achieved the savings that were anticipatedfrom the cost cutting measures implemented in January 2009.

The Company has available a net operating loss carryforward and research and development credit carryforwards that begin to expire in 2015. During fiscal 2009 the Company recorded additional deferred tax expense in the amount of $1,845,200 due to additional losses, deterioration of the markets the Company serves, economic uncertainty, and an increased likelihood of tax credits expiring before being utilized.The Company's entire deferred tax asset of $3,348,000 has been offset by a valuation allowance of $3,348,000. Because of the uncertainties involved with this significant estimate, it is reasonably possible that the Company's estimate may change.

Total current assets were $4,322,711, $6,024,686 and $7,717,113 at March 31, 2009, September 30, 2008 and March 31, 2008, respectively. The decrease of approximately $3,394,000 from March to March was due primarily to the decrease in cash and cash equivalents, accounts receivable, deferred income taxes and prepaid expensesof approximately $2,584,000, $463,000, $355,000 and $67,000 respectively, offset in part by an increase in inventory of approximately $75,000.Cash and cash equivalents and accounts receivable decreased due to the lower sales volume in the most recent quarter. The decrease from September to March of approximately $1,702,000 was due primarily to the lower sales volume during the period. Cash and cash equivalents, accounts receivable and inventory declined by approximately $1,220,000, $305,000 and $90,000 respectively, offset in part by an increase in prepaid expenses of approximately $23,000. The decrease in cash and cash equivalents and accounts receivable was due primarily to the lower sales volume during the current six month period.

Working capital as of March 31, 2009 amounted to $3,795,700 as compared with $7,160,680 a year earlier. Current assets were 8.2times current liabilities compared to 13.9 a year ago. The quick ratio was 2.5compared to 7.8 a year ago.

Internally generated funds during the six months ended March 31, 2009 were a negative $1,185,330 and were not adequate to fund the Company's primary non-operating cash requirement consisting of capital expenditures of $34,674. The primary reason for the negative cash flow from operations was the net loss during the period. The Company believes that cash and cash equivalents, together with funds anticipated to be generated by operations and funds available under its credit agreement will provide the liquidity necessary to support its current and anticipated working capital and capital expenditure requirements through the end of fiscal 2009.

Shareholders' equity during the six months ended March 31, 2009 decreased by $3,382,581 which was the net loss during the period of $3,390,606 and $8,025 of share-based compensation expense.

The Company has a credit agreement with its financial lender that provides for a secured revolving credit facility of $1,000,000 with interest generally equal to three percent per annum plus one month LIBOR. The agreement was modified effective February 1, 2009 and is set to expire in February 2010. The agreement is secured by the Company's accounts receivable, inventory, equipment and general intangibles. The credit agreementcontains affirmative covenant requirements, tested on an annual basis, that require the Company to maintain a tangible net worth of $8,000,000 and a pre-tax interest coverage ratio of not less than 3.0 to 1.0. In addition, a borrowing base addendum generally allows for borrowing based on an amount equal to eighty five percent of eligible receivables, plus an amount equal to the lesser of either forty percent of eligible inventory or $500,000. The revolving credit facility is subject to a review by the Company's lender in February 2010. Management believes a renewal of the credit facility can be negotiated at acceptable terms. The Company had no outstanding borrowings under this loan facility at March 31, 2009. During fiscal 2009 the Company's business may require a short-term increase in inventoryand accounts receivables.Whenever there may be a requirement to increase inventory in fiscal 2009 there will be a negative but temporary impact on liquidity. As previously noted, management has implemented expense reductions during the first and current quarter in response to the economic downturn and uncertainty in the markets the company serves. The Company has reduced headcount, product development, and marketing, administrative and sales related expenses in order to appropriately manage its working capital. The Company believes that internally generated funds and the revolving line of credit will provide sufficient liquidity to meet ongoing working capital requirements.

The Company's previous credit agreement with its financial lender provided for a secured revolving credit facility of $2,500,000 with interest generally equal to two and one half percent per annum plus one month LIBOR. The agreement was secured by the Company's accounts receivable, inventory, equipment and general intangibles. The credit agreementcontained affirmative covenant requirements, tested on an annual basis, that required the Company to maintain a tangible net worth of $8,000,000 and a pre-tax interest coverage ratio of not less than 3.0 to 1.0. In addition, a borrowing base addendum generally allowed for borrowing based on an amount equal to eighty five percent of eligible receivables, plus an amount equal to the lesser of either forty percent of eligible inventory or $1,000,000. The revolving credit facility was subject to a review by the Company's lender in 2010 but was modified effective February 1, 2009. The Company violated the tangible net worth covenant and the pre-tax interest coverage ratio covenant at September 30, 2008 due to the loss for the fiscal year and obtained a waiver from its financial lender.

Our critical accounting policies are as presented in Notes to Consolidated Financial Statements and Management's Discussion and Analysis or Plan of Operation in our Form 10-KSB for the year ended September 30, 2008.

The foregoing discussion includes forward-looking statements relating to the business of the Company. These forward-looking statements, or other statements made by the Company, are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors (including, but not limited to, those specified below) which are difficult to predict and, in many instances, are beyond the control of the Company. As a result, actual results of the Company could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) the Company's dependence upon a limited number of customers, (b) the highly competitive industry in which the company operates, which includes several competitors with greater financial resources and larger sales organizations, (c) the acceptance in the marketplace of new products and/or services developed or under development by the Company including automotive diagnostic products, fastening systems products and indicating instrument products, (d) the ability of the Company to further establish distribution and a customer base in the automotive aftermarket, and (e) the Company's ability to capitalize on market opportunities including state automotive emissions programs and OEM tool programs.