Executive Overview

The results of operations for the three months ended March 31, 2009 and March 31, 2008 include the results of ICS which was acquired effective, December 31, 2007. The Company recorded a decrease in operating results for the three months ended March 31, 2009 compared to the prior period primarily from decreased sales by ICS due to a delay in orders on the MK 119 Gun Console system. Sales decreased by 8.5% for the quarter due to lower sales from the Electronics Group and despite higher sales from the Power Group. In addition to lower sales, the Company realized lower gross margins, a decrease in investment and other income which despite slightly lower selling, general and administrative expenses and lower interest expense, resulted in a net loss of $353,000 for the three months ended March 31, 2009 compared to net income of $11,000 in the prior period.

Our backlog at March 31, 2009 was approximately $14,300,000 compared to $13,700,000 at March 31, 2008. In addition, the Company expects increased bookings in the coming months, particularly on the MK 119 for ICS and an additional order for Remote Control Units for the Orbit Instrument Division. There is no seasonality to the Company's business. Our shipping schedules are generally determined by the shipping schedules outlined in the purchase orders received from our customers. Both of our operating segments are pursuing a significant amount of business opportunities and our confidence level remains very high with respect to receiving many of the orders we are pursuing although timing is always an uncertainty. Nevertheless, we remain very encouraged by our business environment and we expect improved operating results in the next three quarters and in particular, the second half of 2009.

Our success of the past few years has significantly strengthened our balance sheet evidenced by our 5.0 to 1 current ratio at March 31, 2009. We currently have a $3,000,000 credit facility in place. As a result of lower profitability related to customer shipping delays in the first and second quarter of 2008, the Company was not in compliance with two of its financial covenants at September 30, 2008. In November 2008, the Company's primary lender waived the covenant default of two of its financial ratios at September 30, 2008 and the Company renegotiated the financial covenant ratios for the quarterly reporting periods ended December 31, 2008 and March 31, 2009. Beginning with the quarterly period ending June 30, 2009, the covenants will revert back to their original ratios with a modification to a certain financial ratio covenant definition. The Company was in compliance with all its financial covenants at March 31, 2009.

In August 2008, the Company's Board of directors authorized a stock repurchase program allowing it to purchase up to $3.0 million of its outstanding shares of common stock in open market or privately negotiated transactions. During the period from August 2008 through March 31, 2009, the Company repurchased approximately 256,000 shares at an average price of $2.23 per share. Total consideration for the repurchased stock was approximately $572,000. From August through May 8, 2009, the Company purchased approximately 263,000 shares of its common stock for total cash consideration of $592,000 representing an average price of $2.25 per share.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and the results of its operations are based on the Company's financial statements and the data used to prepare them. The Company's financial statements have been prepared based on accounting principles generally accepted in the United States of America. On an on-going basis, we re-evaluate our judgments and estimates including those related to inventory valuation, the valuation allowance on the Company's deferred tax asset, goodwill impairment, valuation of share-based compensation, revenue and cost recognition on long-term contracts accounted for under the percentage-of-completion method, and other than temporary impairment on marketable securities. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect more significant judgments and estimates in the preparation of the consolidated financial statements.

Inventories

Inventory is valued at the lower of cost (specific, average and first-in, first-out basis) or market. Inventory items are reviewed regularly for excess and obsolete inventory based on an estimated forecast of product demand. Demand for the Company's products can be forecasted based on current backlog, customer options to reorder under existing contracts, the need to retrofit older units and parts needed for general repairs. Although the Company makes every effort to insure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in its inventory and operating results could be affected, accordingly. However, world events have forced our country into various situations of conflict whereby equipment is used and parts may be needed for repair. This could lead to increased product demand as well as the use of some older inventory items that the Company had previously determined obsolete.

Deferred tax asset

At December 31, 2008, the Company had an alternative minimum tax credit of approximately $573,000 with no limitation on the carry-forward period and federal and state net operating loss carry-forwards of approximately $20,000,000 and $7,000,000, respectively that expire through 2020. Approximately, $16,000,000 of federal net operating loss carry-forwards expire between 2010 and 2012. In addition, the Company receives a tax deduction when their employees exercise their non-qualified stock options thereby increasing the Company's deferred tax asset. The Company records a valuation allowance to reduce its deferred tax asset when it is more likely than not that a portion of the amount may not be realized. The Company estimates its valuation allowance based on an estimated forecast of its future profitability. Any significant changes in future profitability resulting from variations in future revenues or expenses could affect the valuation allowance on its deferred tax asset and operating results could be affected, accordingly.

Impairment of Goodwill

The Company has significant intangible assets related to goodwill and other acquired intangibles. In determining the recoverability of goodwill and other intangibles, assumptions are made regarding estimated future cash flows and other factors to determine the fair value of the assets. After completing the impairment testing of goodwill and other intangible assets pursuant to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company concluded an impairment charge should be taken at December 31, 2008 in connection with the recorded goodwill arising from its acquisitions made between 2005 and 2007. If estimates or their related assumptions used in the current testing change in the future, the Company may be required to record further impairment charges.

Share-Based Compensation

Effective January 1, 2006, the Company began recognizing share-based compensation under SFAS No. 123(R), which requires the measurement at fair value and recognition of compensation expense for all share-based awards. Total share-based compensation expense was $79,000 for the three months ended March 31, 2009. The estimated fair value of stock options granted in 2009 and 2008 were calculated using the Black-Scholes model. This model requires the use of input assumptions. These assumptions include expected volatility, expected life, expected dividend rate, and expected risk-free rate of return.

Revenue and Cost Recognition

Revenue and costs under larger, long-term contracts are reported on the percentage-of-completion method. For projects where materials have been purchased but have not been placed in production, the costs of such materials are excluded from costs incurred for the purpose of measuring the extent of progress toward completion. The amount of earnings recognized at the financial statement date is based on an efforts-expended method, which measures the degree of completion on a contract based on the amount of labor dollars incurred compared to the total labor dollars expected to complete the contract. When an ultimate loss is indicated on a contract, the entire estimated loss is recorded in the period. Assets related to these contracts are included in current assets as they will be liquidated in the normal course of contract completion, although this may require more than one year.

Other than Temporary Impairment

The Company currently has in excess of $800,000 invested in government and corporate bonds. The Company treats its investments as available for sale pursuant to SFAS No. 115 which requires the Company to assess its portfolio each reporting period to determine whether declines in fair value below book value are considered to be other than temporary. If the impairment is determined to be other than temporary, the investment is written down to cost and the write-down is included in earnings as a realized loss, and a new cost is established for the security. Any subsequent recovery in fair value is not recognized until the security either is sold or matures. The Company uses several factors in its determination of whether an other than temporary impairment of one of its securities has occurred including i) the length of time and extent to which market value has been less than cost; ii) the financial condition and near term prospects of the issuer; iii) the intent and ability of the Company to retain its investment in the issuer to allow for any anticipated recovery in market value; iv) whether a decline in fair value is attributable to adverse conditions specifically related to the security or specific conditions in an industry and v) whether interest payments continue to be made. Although the Company received all its interest payments during the current quarter, it took an other than temporary impairment write-down of $39,000 for the three months ended March 31, 2009 consisting of bonds held in two separate issuers in which it determined the decline in fair value was due to adverse conditions specifically related to the security or specific conditions in an industry.

Results of Operations

Three month period ended March 31, 2009 v. March 31, 2008

The Company currently operates in two industry segments. Its Orbit Instrument Division and its Tulip subsidiary are engaged in the design and manufacture of electronic components and subsystems and its ICS subsidiary performs system integration for Gun Weapons Systems and Fire Control Interface as well as logistics support and documentation (the "Electronics Group"). Its Behlman subsidiary is engaged in the design and manufacture of commercial power units (the "Power Group"). The results of operations for the three month period ended March 31, 2009 and March 31, 2008 include the operations of ICS for the entire period since the acquisition was completed effective, December 31, 2007.

Consolidated net sales for the three month period ended March 31, 2009 decreased by 8.5% to $6,047,000 from $6,610,000 for the three month period ended March 31, 2008 principally due to lower sales from the Electronics Group and despite increased sales from the Power Group. Sales from the Electronics Group decreased by 15.3%, due principally to the delay of new orders for ICS on the MK 119 Gun Console System which had an adverse effect on revenue since work on this contract is accounted for under the percentage of completion method. Sales also decreased at Tulip but increased for the Orbit Instrument Division. Sales from the Power Group increased by 4.5% from the prior year due to increased sales from its custom division and despite lower sales from its commercial division.
Gross profit, as a percentage of sales, for the three months ended March 31, 2009 decreased to 37.6% from 39.9% for the three month period ended March 31, 2008. This decrease resulted from a lower gross profit from the Company's Electronics Group resulting from inefficient labor costs at ICS due to the aforementioned delay in orders, a decrease in gross profit from the Orbit Instrument Division due to product mix and despite a higher gross profit realized by Tulip. Gross profit from the Power Group also slightly decreased during the current period due to product mix.

Selling, general and administrative expenses decreased slightly by 0.6% to $2,601,000 for the three month period ended March 31, 2009 from $2,618,000 for the three month period ended March 31, 2008 principally due to lower selling, general and administrative expenses from the Electronics Group that was slightly offset by higher selling, general and administrative expenses from the Power Group and higher corporate costs. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended March 31, 2009 increased to 43.0% from 39.6% for the three month period ended March 31, 2008 principally due to a decrease in sales that was slightly offset by a slight decrease in costs.

Interest expense for the three months ended March 31, 2009 decreased to $46,000 from $102,000 for the three months ended March 31, 2008, resulting from a decrease in the amounts owed to lenders in the current period due to the pay down of its term debt and to a decrease in interest rates.

Investment and other income for the three month period ended March 31, 2009 decreased to $20,000 from $96,000 for the three-month period ended March 31, 2008 principally due to a decrease in the amounts invested during the current period, a decrease in interest rates and a $39,000 other than temporary impairment charge related to certain corporate bonds held by the Company.

Net loss was $353,000 for the three months ended March 31, 2009 compared to net income of 11,000 for the three months ended March 31, 2008. The decrease in income was principally due to the decrease in sales from the Electronics Group, a decrease in gross profit, a decrease in investment and other income and despite a slight decrease in selling, general and administrative expenses and interest expense.

There was no income tax provision for the three months ended March 31, 2009 or March 31, 2008.

Earnings before interest, taxes and depreciation and amortization (EBITDA) for the three months ended March 31, 2009 decreased to a loss of $128,000 from income of $339,000 for three months ended March 31, 2008. Listed below is the EBITDA reconciliation to net income:

                                        Three  months  ended
                                             March  31,
                                             ----------
                                    2009                     2008
                                    ----                     ----

Net  income                      $(353,000)               $  11,000
Interest  expense                   46,000                  102,000
Income  tax  expense                   0                       0
Depreciation  and  amortization    179,000                  226,000
                                   -------                  -------
EBITDA                           $(128,000)                $339,000
                                 ==========                ========

EBITDA is a Non-GAAP financial measure and should not be construed as an alternative to net income. An element of the Company's growth strategy has been through strategic acquisitions which have been substantially funded through the issuance of debt. This has resulted in significant interest expense and amortization expense. EBITDA is presented as additional information because the Company believes it is useful to our investors and management as a measure of cash generated by our business operations that will be used to service our debt and fund future acquisitions as well as provide an additional element of operating performance.

Material Change in Financial Condition

Working capital decreased to $16,870,000 at March 31, 2009 compared to $17,136,000 at December 31, 2008. The ratio of current assets to current liabilities was 5.0 to 1 at March 31, 2009 compared to 4.4 to 1 at December 31, 2008. The reduction in working capital was primarily attributable to the net loss for the period, repayments of debt and the purchase of treasury stock.

Net cash provided by operations for the three month period ended March 31, 2009 was $2,372,000, primarily attributable to the decrease in accounts receivable and the non-cash amortization of intangible assets and despite the net loss for the period, the increase in inventory and the decrease in accounts payable and accrued expenses. Net cash used in operations for the three month period ended March 31, 2008 was $940,000, primarily attributable to an increase in accounts receivable, inventory and costs and estimated earnings in excess of billings, a decrease in accounts payable and accrued expenses and despite the non cash amortization of intangible assets and the increase in customer advances.

Cash flows provided by investing activities for the three month period ended March 31, 2009 was $156,000, primarily attributable to the sale of marketable securities and the sale of fixed assets that was partially offset by the purchase of fixed assets. Cash flows used in investing activities for the three month period ended March 31, 2008 was $53,000, primarily attributable to the purchase of marketable securities, property and equipment and additional costs associated with the ICS acquisition that was partially offset by the sale of marketable securities.

Cash flows used in financing activities for the three month period ended March 31, 2009 was $884,000, primarily attributable to the repayment of long term debt and the purchase of treasury stock. Cash flows used in financing activities for the three month period ended March 31, 2008 was $663,000, primarily attributable to the repayment of long term debt and note payable-bank that was partially offset from loan proceeds from the Company's line of credit.

In December 2007, the Company entered into an amended $3,000,000 credit facility with a commercial lender secured by accounts receivable, inventory and property and equipment. In April 2005, the Company entered into a five-year $5,000,000 Term Loan Agreement to finance the acquisition of Tulip ("Tulip term Loan") and its manufacturing affiliate. In December 2007, the Company entered into a five-year $4,500,000 Term Loan Agreement to finance the acquisition of ICS ("ICS Term Loan"). In connection with the new Term Loan entered into in December 2007, the interest rates on both Term Loan Agreements and the credit facility were amended to equal a certain percentage plus the one month LIBOR(.51% at March 31, 2009) depending on a matrix related to a certain financial covenant. The credit facility will continue from year to year unless sooner terminated for an event of default including non-compliance with certain financial covenants. Principal payments under the two term loan facilities are approximately $113,000 per month.

In April 2005, the Company entered into a five year $2,000,000 Promissory Note with the selling shareholders of Tulip ("Tulip Shareholder Note") at an interest rate of prime plus 2.00% (3.25% at March 31, 2009). Principal payments of $100,000 were made on a quarterly basis along with accrued interest. In June 2007, the Company refinanced the balance due on the Promissory Note of $1,050,000 with its primary commercial lender. Under the terms of a new Term Loan, monthly payments of $35,000 will be made over a thirty-month period along with accrued interest pursuant to the interest terms described below.

As a result of lower profitability related to customer shipping delays in the first and second quarter of 2008, the Company was not in compliance with two of its financial covenants at September 30, 2008. In November 2008, the Company's primary lender waived the covenant default of two of its financial ratios at September 30, 2008 and the Company renegotiated the financial covenant ratios for the quarterly reporting periods December 31, 2008 and March 31, 2009. Beginning with the quarter ending June 30, 2009, the covenants will revert back to their original ratios with a modification to a certain financial ratio covenant definition. The lender instituted an unused line fee of .25% per annum, as a cost to the Company for the waiver and amendment to the loan agreements. In connection therewith, the interest rate on the Tulip Term Loan and Tulip Shareholder Note, increased to the sum of 2.50% plus the one month LIBOR and the interest rate on the ICS Term Loan and line of credit was increased to the sum of 2.25% plus the one month LIBOR. The Company was in compliance with all its financial covenants at March 31, 2009.

The Company's contractual obligations and commitments as of March 31, 2009, are summarized as follows:

                                     Less  than       1-2           3-5
                         Total       One  Year        Years        Years
                         -----        ----------      ------       ------
Long-term  debt        $6,362,000    $1,707,000    $2,833,000   $1,822,000
Note  Payable-bank          2,000         2,000         -            -
Employment
 Contracts              3,712,000     2,086,000     1,626,000        -
Operating  leases       2,963,000       727,000     1,457,000      779,000
                        ---------   -----------     ---------    ---------
Total  contractual
Obligations           $13,039,000    $4,522,000    $5,916,000   $2,601,000
                       ==========    ==========    ==========   ==========

The Company's existing capital resources, including its bank credit facilities, and its cash flow from operations are expected to be adequate to cover the Company's cash requirements for the foreseeable future.

In August 2008, the Company's Board of Directors authorized a stock repurchase program allowing it to purchase up to $3.0 million of its outstanding shares of common stock in open market or privately negotiated transactions. During the period from August 2008 through March 31, 2009, the Company repurchased approximately 256,000 shares at an average price of $2.23 per share. Total consideration for the repurchased stock was approximately $572,000. From August through May 8, 2009, the Company purchased approximately 263,000 shares of its common stock for total cash consideration of $592,000 representing an average price of $2.25 per share.

Inflation has not materially impacted the operations of the Company.

Certain Material Trends

During the second quarter of 2008, the Company's Orbit Instrument Division was verbally advised by one of its customers to provide support for the immediate development of certain modifications to a product for the Division. This "out of scope" support caused a delay in a significant amount of shipments scheduled throughout 2008 which resulted in a decrease in revenue and profitability for 2008. The Division worked closely with this customer and shipment of the units resumed in the third quarter. However, a significant number of units scheduled for shipment by December 31, 2008 are now being shipped in 2009. In addition, that same customer has approached the Company and requested a modification to the existing Memorandum of Agreement so that additional units may be procured before the end of the year. The Company expects this modification to be completed shortly and purchase orders to follow. In addition, ICS experienced a delay in the award for its MK 119 Gun Console System which affected its first quarter of 2009 shipments. This award is still being delayed although ICS has been assured that these orders have been given a high priority by the government contracting office. Once received, ICS will most likely apply a very intense labor effort in order to meet contract delivery schedules. Shipment delays related to contracting, funding and engineering issues are commonplace in our industry and could, in the future, have an adverse effect of the financial performance of the Company.

The Power Group had a record year of bookings and revenue in 2008. The commercial division of the Power Group has historically been vulnerable to a weak economy. However, bookings in the commercial division were sustained and bookings from the custom division remained fairly strong near the end of 2008. However, due to current economic conditions and their effect on capital spending, the Power Group's commercial division has experienced a decrease in bookings in the first quarter 2009, however, it has been offset by very strong bookings in its custom division.

In April 2005, the Company completed the acquisition of Tulip and its operations became part of the Company's Electronics Group. In December 2007, the Company completed the acquisition of ICS which also became part of the Electronics Group. The Company's Electronics Group and the Custom Division of its Power Group are heavily dependent on military spending. The events of September 11, 2001, have put a tremendous emphasis on defense and homeland security spending and the Company has benefited from an increasing defense budget. Although the Electronics Group and the Custom Division of the Power Group are pursuing several opportunities for reorders, as well as new contract awards, the Company has normally found it difficult to predict the timing of such awards. In addition, the Company has an unprecedented amount of new opportunities that are in the prototype or pre-production stage. These opportunities generally move to a production stage at a later date but the timing of such is also uncertain.

There is no seasonality to the Company's business. The Company's revenues are generally determined by the shipping schedules outlined in the purchase orders received from its customers. The Company stratifies all the opportunities it is pursuing by various confidence levels. The Company generally realizes a very high success rate with those opportunities to which it applies a high confidence level. The Company currently has a significant amount of potential contract awards to which it has applied a high confidence level. However, because it is difficult to predict the timing of awards for most of the opportunities the Company is pursuing, it is also difficult to predict when the Company will commence shipping under these contracts. A delay in the receipt of any contract . . .