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.

Overview

Our primary focus is to provide real-time systems solutions, including equipment, software, and services to our customers in the areas of hydrological monitoring and control, meteorological monitoring including airport weather systems, and oceanic monitoring. 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 dataloggers, Accububble Self-Contained Bubbler, Accubar Pressure Sensor, Tides Systems, Ilex Tempest DCS Software and XConnect Systems Software. These are the essential components of most systems and are provided to customers as off-the-shelf equipment or as components of a 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 and 51% of revenues for the first six months of 2009, 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 June 30, 2009 was approximately $1,251,000. 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 Division; however, our primary customer in Florida, South Florida Water Management District (SFWMD), has expanded the pool of qualified contractors on all of 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.

Critical Accounting Policies and Estimates

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 second 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
                                                               June 30,
                                                         2009           2008

        Net sales and revenues                             100.0 %      100.0 %
        Cost of sales and revenues                          59.4         66.7
        Gross profit                                        40.6         33.3

        Selling, general and administrative expenses        20.1         18.0
        Research and product development expenses            8.6          7.1
        Operating income                                    11.9          8.2
        Interest and other income                             .5           .6
        Income before income taxes                          12.4          8.8
        Income taxes                                         4.9          2.4
        Net income                                           7.5 %        6.4 %

Three months ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Net Sales and Revenues

Revenues for the second quarter ended June 30, 2009 increased 19% to $4,786,898 from $4,025,016 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 increase of 6% to $2,395,630 from $2,260,159 in 2008. Net sales and revenues for systems, software and services increased 36% to $2,391,268 from $1,764,856 in 2008 primarily due to increased contract revenue from the Company's project with the Tamil Nadu Agricultural University (TNAU) located in Coimbatore, India to provide 224 agricultural/meteorological monitoring stations. Overall domestic revenues decreased 32% to $1,965,371 in the second quarter of 2009 versus $2,892,415 in 2008 while international revenues increased 149% to $2,821,527 in the second quarter of 2009 versus $1,132,601 in the same period in 2008.

Customer orders or bookings in the second quarter of 2009 were approximately $10,625,000 as compared to approximately $2,389,000 in the second quarter of 2008, an increase of 345%. The increase was primarily due to receipt of the TNAU contract in April 2009 which was approximately $2,979,000 and due to two orders received from the U.S. Geological Survey in June 2009 which totaled approximately $3,972,000.

Cost of Sales and Revenues

Cost of sales as a percentage of revenues was 59.4% for the second quarter of 2009 as compared to 66.7% for the same period in 2008. Cost of sales for standard products was approximately 58% in the second quarter of 2009 as compared to 52% in 2008. The cost increase for standard products was primarily due to the product mix resulting in sales of lower margin products. Cost of sales for systems, software and services was 60% in the second quarter of 2009 as compared to 86% in the second quarter of 2008. The decrease was primarily due to increased sales volume which resulted in higher coverage of fixed costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $961,872 for the second quarter of 2009 from $723,335 for the same period in 2008. Selling, general and administrative expenses as a percentage of revenues increased to 20.1% for the second quarter of 2009 from 18% for the same period in 2008. The increase was primarily due to higher sales and marketing costs due to the addition of our Ilex Division, increased Integrated Systems' and Sutron HydroMet Systems (India wholly owned subsidiary) selling costs and increased General Services Administration (GSA) contract funding fees due to higher orders

received from the U.S. Geological Survey. One-time costs associated with moving into our new facility totaled approximately $31,000.

Research and Development Expenses

Research and development expenses increased to $412,502 for the second quarter of 2009 from $285,487 for the same period in 2008. The increase was due higher use of subcontractors assisting on product development relating to our radar level recorder as well as another new product, an increase in R&D personnel and lower direct bill labor by engineering personnel resulting in higher charges to research and development projects. Our product development continues to focus on enhancements to our current products including our Satlink2 satellite transmitter/logger, our Xpert /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 second quarter of 2009. We had interest income for the quarter ended June 30, 2009 of $22,487 as compared to interest income of $26,107 for the quarter ended June 30, 2008.

Income Taxes

Income tax expense for the quarter ended June 30, 2009 was $232,700 as compared to an income tax expense of $98,000 for the quarter ended June 30, 2008. The provisions for income taxes represent an effective income tax rate of 39% in 2009 and an effective income tax rate of 27.5% in 2008. The exercise of employee stock options in the second quarter of 2008 resulted in tax deductible compensation which lowered income tax expense while there were no employee stock option exercises in 2009.

Six months ended June 30, 2009 Compared to Six Months Ended June 30, 2008

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
                                                              June 30,
                                                          2009          2008

        Net sales and revenues                              100.0 %      100.0 %
        Cost of sales and revenues                           60.2         63.9
        Gross profit                                         39.8         36.1

        Selling, general and administrative expenses         23.6         20.5
        Research and product development expenses             9.2          7.3
        Operating income                                      7.0          8.3

        Interest and other income                             2.3           .9
        Income before income taxes                            9.3          9.2
        Income taxes                                          3.8          2.7
        Net income                                            5.6 %        6.5 %

Net Sales and Revenues

Revenues for the six months ended June 30, 2009 increased 7% to $8,361,929 from $7,844,063 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 increase of 3% to $4,514,205 from $4,390,980 in 2008. Net sales and revenues for systems, software and services increased 11% to $3,847,724 from $3,453,083 in 2008 primarily due to increased contract revenue from the Company's project with the Tamil Nadu Agricultural University (TNAU) located in Coimbatore, India to provide 224 agricultural/meteorological monitoring stations. Overall domestic revenues decreased 18% to $4,114,769 for the six months ended June 30, 2009 versus $5,011,098 in 2008 while international revenues increased 50% to $4,247,161 for the six months ended June 30, 2009 versus $2,832,965 in 2008.

Customer orders or bookings for the six months ended June 30, 2009 were approximately $13,358,000 as compared to approximately $4,896,000 in 2008, an increase of 173%. The increase was primarily due to receipt of the TNAU contract which was approximately $2,979,000 and due to two orders received from the U.S. Geological Survey which totaled approximately $3,972,000.

Cost of Sales and Revenues

Cost of sales as a percentage of revenues was 60.2% for the six months ended June 30, 2009 as compared to 63.9% for the same period in 2008. Standard product cost of sales as a percentage of standard product revenues was approximately 53% for the six months ended June 30, 2009 as compared to 47% in 2008. The standard product cost increase was primarily due to the product mix resulting in sales of lower margin products. Cost of sales for systems, software and services as a percentage of systems, software and services revenues was 68% for the six months ended June 30, 2009 as compared to 85% in the second quarter of 2008. The decrease was primarily due to increased sales volume which resulted in higher coverage of fixed costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,971,907 in 2009 as compared to $1,604,583 in 2008, an increase of $367,324 or 23%. Selling, general and administrative expenses as a percentage of revenues increased to 23.6% for the six months ended June 30, 2009 from 20.5% in 2008. The increase can be attributed to higher sales and marketing costs due to the addition of our Ilex Division as well as increases in Integrated Systems' and Sutron HydroMet Systems (India wholly owned subsidiary) selling costs. Agent commissions on several international projects for the six months ended June 30, 2009 increased approximately $85,000 over 2008. GSA funding fees increased approximately $28,000 over 2008 fees due to large orders received from the U.S. Geological Survey during the first six months of 2009. One-time costs associated with moving into our new facility totaled approximately $67,000 and one-time costs of stock option compensation relating to the Ilex acquisition totaled approximately $36,000 during the first six months of 2009.

Research and Development Expenses

Research and development expenses increased to $771,591 in 2009 from $576,243 in 2008, an increase of $195,348 or 34%. Research and development expenses as a percentage of revenues increased to 9.2% for the six months ended June 30, 2009 from 7.3% in 2008. The increase was due higher use of subcontractors assisting on product development relating to our radar level recorder as well as another new product, an increase in R&D personnel and lower direct bill labor by engineering personnel resulting in higher charges to research and development projects.

Interest and Other Income, Net

Due to the Company's cash position, the Company did not use its line of credit during the six months ended June 30, 2009. The Company had net interest income in 2009 of $44,979 as compared to net interest income of $66,429 in 2008. In 2007, we brought a lawsuit against a former employee. 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 taxes increased 48% in 2009 to $315,700 from $214,000 in 2008. The provisions for income taxes represent an effective income tax rate of 40% in 2009 and 30% in 2008. The exercise of employee stock options during the six months ended June 30, 2008 resulted in tax deductible compensation which lowered income tax expense while there were no employee stock option exercises during the six months ended June 30, 2009.

Liquidity and Capital Resources

Cash and cash equivalents were $3,804,097 at June 30, 2009 compared to $3,705,475 at December 31, 2008. Working capital increased to $11,916,607 at June 30, 2009 compared with $11,745,166 at December 31, 2008.

Net cash provided by operating activities was $755,953 for the six months ended June 30, 2009 as compared to cash used by operating activities of $717,428 for the six months ended June 30, 2008. An increase in accounts receivables was offset by reductions in inventory and income tax receivables.

Net cash used by investing activities was $664,295 for the six months ended June 30, 2009 as compared to cash used by investing activities of $875,977 for the six months ended June 30, 2008. Cash used in 2009 was primarily for the purchase of property and equipment and an increase in restricted cash that was used to secure bid and performance bonds. Cash used in 2008 was due to an increase in restricted cash relating to a performance bond issued to the Ministry of Energy and Water in Afghanistan.

Net cash used by financing activities was $2,765 for the six months ended June 30, 2009 as compared to net cash used by financing activities of $6,930 for the six months ended June 30, 2008.

We had a revolving credit facility of $3,000,000 with BB&T that expired on August 5, 2009. We anticipate that the credit facility will be renewed in August 2009. We have been permitted to borrow based on accounts receivable and inventory according to pre-established criteria. The credit facility has been secured by substantially all assets of the Company. Borrowings bear interest at the bank's prime rate. During the six months ended June 30, 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 June 30, 2009 and December 31, 2008, our bank had issued standby letters of credit in the amount of $411,000 and $1,010,238 respectively 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 anticipated 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.