OVERVIEW

We develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists and road workers in both domestic and international markets. Our continuing operations are comprised of two reportable segments within the highway and transportation safety industry. Our two reportable segments are: the manufacture and sale of highway and transportation safety products which Protect and Direct and the manufacture and sale of highway products and services which Inform motorists and highway personnel. The Protect and Direct segment provides solutions for improving safety on the roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding traffic. The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, sand-filled barrels and water-filled barriers, and directing and guiding products such as flexible post delineators and glare screen systems. The Inform segment provides solutions for improving traffic flow and safety on roads and runways by providing information. The primary product lines within the Inform segment include advanced sensing products which measure distance, count and classify vehicles; weather sensing systems and computerized highway advisory radio transmitting systems.

Our products are sold worldwide primarily through a distribution network and supplemented by a direct sales force to customers in the highway construction and safety business, state and municipal departments of transportation, and other governmental transportation agencies. The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental policies and budgets. A portion of our domestic sales is ultimately financed by funds provided to the states by the federal government. Historically, these funds have covered 75% to 90% of the cost of highway safety projects on roads constructed or maintained with federal assistance. Seasonality affects our business with generally a higher level of sales in our fourth fiscal quarter.

DISCONTINUED OPERATIONS

On July 25, 2008, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in cash. The Intersection Control segment sold products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment and toll road monitoring systems. Accordingly, we reflected the results of those operations as discontinued operations for all periods presented. The assets and liabilities of the divested segment were classified as assets and liabilities held for sale within our consolidated balance sheet as of June 30, 2008.

RESULTS OF CONTINUING OPERATIONS

Summary

Sales decreased 8% to $94,093,000 for fiscal 2009 compared to $101,806,000 for fiscal 2008 due to decreased sales for the Protect and Direct segment. Overall, domestic sales decreased 12% to $68,155,000 for fiscal 2009 from $77,164,000 for fiscal 2008 due to decreased sales in our Protect and Direct segment, which were somewhat offset by increased sales in our Inform segment. Domestic sales for the Protect and Direct segment decreased 17% for fiscal 2009 compared to fiscal 2008. During fiscal 2008, we began to see a general economic slowdown in the United States, which worsened during fiscal 2009, causing many states and municipalities to face budgetary constraints and deficits. In addition, basic material costs including steel, asphalt and other materials for building and maintaining roads and bridges increased beginning in fiscal 2008 into the first half of fiscal 2009. Facing these issues, many states postponed or cancelled many transportation projects which adversely impacted the domestic demand for our products. Beginning in the fourth quarter of fiscal 2009 we began to see increased sales activity, in part due to the Federal Stimulus funding, which resulted in our profitable fourth quarter.

Given the softness in the domestic economy, we focused our efforts on international sales opportunities during fiscal 2008 and fiscal 2009. However, during fiscal 2009 the economic downturn adversely impacted our international markets as well. While our international sales increased 5% to $25,938,000 for fiscal 2009 compared to $24,642,000 for fiscal 2008, the increase was not in line with our historical growth rate, nor was it in line with our expectations. International sales for the Protect and Direct segment increased 4% and increased 15% for the Inform segment for fiscal 2009 compared to fiscal 2008. The increases in international sales were driven by growth in all international regions except in the Asia-Pacific region, where sales decreased 33%.

The overall lower sales volumes in fiscal 2009, unfavorable product sales mix and increased product costs resulted in lower gross profit margin for both segments in fiscal 2009. Due to the continuing difficult economic condition and its impact on infrastructure spending, we increased our emphasis on reducing costs and also implemented several reductions in our workforce which resulted in severance costs of $1,342,000 in fiscal 2009. In addition, we performed an interim goodwill impairment review in the third quarter of fiscal 2009, as further discussed in Footnote 8 to our Consolidated Financial Statements, which resulted in a goodwill impairment charge for the Inform segment of $9,246,000. As a result of these factors, we recorded an operating loss in fiscal 2009 after reporting an operating profit from continuing operations in fiscal 2008. See FUTURE OUTLOOK for further information.

The following table sets forth selected key operating statistics relating to the financial results of our continuing operations:

                                                  For the Years Ended
                                                        June 30
        (Dollar amounts in thousands,
        except per share data)              2009           2008        2007
        Revenues by Segment:
             Protect and Direct           $  71,511      $  80,523   $  83,593
             Inform                          22,582         21,283      24,181

                                          $  94,093      $ 101,806   $ 107,774

        Geographic Revenues:
             Domestic                     $  68,155      $  77,164   $  87,342
             International                   25,938         24,642      20,432

                                          $  94,093      $ 101,806   $ 107,774

        Operating (Loss) Earnings by
        Segment:
             Protect and Direct           $   3,833 (1)  $  14,165   $  16,965 (4)
             Inform                          (8,309 )(2)     1,441       3,445 (5)
             Unallocated Corporate           (7,193 )(3)    (7,262 )    (8,172 )

                                          $ (11,669 )    $   8,344   $  12,238

        Gross profit percentage                29.4 %         36.2 %      40.4 %

        Selling and administrative
        expenses as a percentage of
        sales                                  27.4 %         24.4 %      26.3 %

        Diluted (loss) earnings per
        share from continuing
        operations                        $   (1.12 )(6) $    0.34   $    0.54

º (2)
º Includes a $9,246 goodwill impairment charge and $98 in severance costs.

º (3)
º Includes $782 in severance costs.

º (4)
º Includes a $236 gain on sale of assets.

º (5)
º Includes a $282 gain on sale of assets.

º (6)
º Includes a goodwill impairment charge of $0.74 per diluted share and severance costs of $0.09 per diluted share.

Revenues

Our net sales for fiscal 2009 decreased 8% to $94,093,000 from $101,806,000 for 2008 primarily due to lower sales in our Protect and Direct segment. Sales in our Inform segment increased particularly in our traffic and weather sensing product lines. Our net sales for fiscal 2008 decreased 6% to $101,806,000 from $107,774,000 for 2007 due to lower sales in both segments

Geographic-International sales for fiscal 2009 increased by $1,296,000, or 5%, to $25,938,000 compared to $24,642,000 for fiscal 2008, due to increases in both the Protect and Direct and the Inform segments. International sales increased 4% to $23,166,000 for fiscal 2009 in the Protect and Direct segment, with increases in all regions except the Asia-Pacific region. In the Asia-Pacific region, sales for the Protect and Direct segment decreased primarily in Australia due to lower sales of Triton® water-filled barriers. International sales increased 15% to $2,772,000 for fiscal 2009 in the Inform segment primarily due to increased sales of sensing products in Canada, Latin America and the Asia-Pacific region. Domestic sales for fiscal 2009 decreased 12% to $68,155,000 from $77,164,000 due to a 17% decrease in the Protect and Direct segment, which was partially offset by a 5% increase in the Inform segment.

International sales for fiscal 2008 increased by $4,210,000, or 21%, to $24,642,000 compared to $20,432,000 for fiscal 2007, primarily due to increases in the Protect and Direct segment, where international sales increased 22% to $22,236,000 for fiscal 2008 from $18,273,000 for fiscal 2007. The increase in international sales in the Protect and Direct segment was primarily due to increased sales of Triton water-filled barriers and crash cushions in the Asia-Pacific region, including China, and to increased sales in Europe. International sales for the Inform segment increased 11% to $2,406,000 primarily due to increased sales of sensing products in Europe and Latin America. Domestic sales for fiscal 2008 decreased 12% to $77,164,000 from $87,342,000 due to an 11% decrease in the Protect and Direct segment and a 14% decrease in the Inform segment.

Protect and Direct-Net sales for the Protect and Direct segment for fiscal 2009 decreased 11% to $71,511,000 from $80,523,000 for fiscal 2008 due principally to lower domestic sales of permanent crash cushions, truck-mounted attenuators (TMA's), parts and delineators, offset somewhat by increased sales of barrels. The domestic sales decreases were attributable to decreased spending on highway safety projects due to funding issues related to the worsening economy. The segment continued to have strong sales in many international regions in fiscal 2009 as those markets are increasingly recognizing the importance of our safety devices However, sales of Triton® water-filled barriers to the Asia-Pacific region fell significantly from the record level attained in fiscal 2008, in part due to currency fluctuations in Australia. Sales of our ABC Terminals increased $3,437,000 in international markets, with sales particularly strong in Europe.

Net sales for the Protect and Direct segment for fiscal 2008 decreased 4% to $80,523,000 from $83,593,000 for fiscal 2007 due principally to lower domestic sales of permanent crash cushions, truck-mounted attenuators (TMA's) and barrels, offset somewhat by increased sales of parts and delineators. The domestic sales decreases were attributable to decreased spending on highway safety projects due to funding issues related to the soft economy. In addition, fiscal 2007 included a $3 million order from the state of Illinois for TMA's which was not repeated in fiscal 2008. The segment had strong sales internationally in fiscal 2008 as those markets are increasingly recognizing the importance of our safety devices. The Quest crash cushion product line reached targeted record sales aided by $1.2 million in sales in China. Sales of Triton® water-filled barriers to international markets were also at record levels in fiscal 2008.

Inform-Net sales for the Inform segment for fiscal 2009 increased 6% to $22,582,000 from $21,283,000 for fiscal 2008, with increases in most product lines except highway advisory radios. Domestic sales increased 5% to $19,810,000. International sales increased 15% to $2,772,000, primarily

due to increases in sales in Canada, Latin America and the Asia-Pacific region. Despite the difficult economic conditions, the Inform segment began fiscal 2009 with a strong backlog of orders which aided their sales effort during the year.

Net sales for the Inform segment for fiscal 2008 decreased 12% to $21,283,000 from $24,181,000 for fiscal 2007, due to lower domestic sales of highway advisory radios, offset somewhat by increased sales of sensing products. Sales of highway advisory radios were at record levels in fiscal 2007 and included several large contracts.

Gross Profit Margin

Our gross profit margin for fiscal 2009 was 29.4% compared to 36.2% for fiscal 2008. The gross margin in the Protect and Direct segment decreased primarily due to volume-related inefficiencies caused by the fixed nature of certain expenses, increased product costs and unfavorable product sales mix with increased sales of ABC Terminals which have lower gross margins. The gross margin for the Inform segment decreased due to unfavorable product sales mix as sales of higher-margin highway advisory radio products decreased and sales of lower-margin traffic and weather sensing products increased.

Our gross profit margin for fiscal 2008 was 36.2% compared to 40.4% for fiscal 2007. The gross margin in the Protect and Direct segment decreased due to volume-related inefficiencies related to the fixed nature of certain expenses, increased raw material costs, higher freight costs and unfavorable product sales mix as sales of higher-margin permanent crash cushions decreased and sales of lower-margin products such as the Triton barriers and delineators increased. The gross margin for the Inform segment decreased due to volume-related inefficiencies and unfavorable product sales mix as sales of higher-margin highway advisory radio products decreased and sales of lower-margin weather sensing products increased.

Selling and Administrative Expenses

Selling and administrative expenses for fiscal 2009 increased $893,000, or 4%, to $25,738,000 from $24,845,000 for fiscal 2008. Our cost saving initiatives, which included a 12% reduction in personnel count, were offset primarily by a $1,226,000 increase in bad debt expense across both segments compared to fiscal 2008. Selling and administrative expenses increased as a percentage of sales to 27.4% for fiscal 2009 compared to 24.4% for 2008.

Selling and administrative expenses for fiscal 2008 decreased $3,501,000, or 12%, to $24,845,000 from $28,346,000 for fiscal 2007. This was primarily due to decreased selling costs related to our lower sales volume along with decreased bad debt expense in both segments. Selling and administrative expenses in the Protect and Direct segment increased $924,000 relating to our facility in Beijing, China, opened near the end of fiscal 2007. Selling and administrative expenses decreased as a percentage of sales to 24.4% for fiscal 2008 compared to 26.3% for 2007.

Research and Development

Research and development expenditures decreased 17% to $3,039,000 for fiscal 2009 from $3,650,000 for fiscal 2008. The decrease is in part due to our focus on investing primarily in critical projects to support our long-term growth. We expect to continue this focus into fiscal 2010 and expect to invest in research and development at approximately the same level as in fiscal 2009.

Research and development expenditures increased 6% to $3,650,000 for fiscal 2008 from $3,453,000 for fiscal 2007, due to increases in both segments for new product extensions.

Severance Costs

We recorded and paid $1,342,000 in severance costs in fiscal 2009 due to headcount reductions resulting from our cost savings initiatives and to the retirement of a few senior executives. Severance costs of $462,000, $98,000 and $782,000 were recorded in the Protect and Direct segment, the Inform segment and at Corporate, respectively. No severance costs were recorded in fiscal 2008 or fiscal 2007.

Goodwill Impairment Charge

As further discussed in Note 8 to the Consolidated Financial Statements, a non-cash goodwill impairment charge of $9,246,000 was recorded in the Inform segment in fiscal 2009 resulting from an interim goodwill impairment test performed in the third quarter. There was no impairment charge recorded in the Protect and Direct segment during fiscal 2009 due to the relatively low level of long-lived assets within the segment as compared to the Inform segment with a higher relative level of long-lived assets. No impairment charges were recorded in fiscal 2008 or fiscal 2007.

Gain on Sale of Assets

As further discussed in Note 5 to the consolidated financial statements, we recorded a gain on the sale of assets of $518,000 in fiscal 2007. This gain included a gain of $236,000 on the sale of a former manufacturing facility of the Protect and Direct segment and a gain of $282,000 resulting from final contingent proceeds relating to the sale of the weather forecasting product line in the Inform segment. No gains on sales of assets were recorded in fiscal 2009 or fiscal 2008.

Operating (Loss) Profit

The operating loss was $11,669,000 for fiscal 2009 compared to operating profit of $8,344,000 for fiscal 2008. The operating loss was due to the lower sales levels, unfavorable product mix, higher bad debt expenses, severance costs and the goodwill impairment charge as discussed above. Operating profit for the Protect and Direct segment decreased $10,332,000 to $3,833,000 from $14,165,000 for fiscal 2008, primarily due to lower sales and gross margins, increased bad debt expense and severance costs of $462,000 as discussed above. The operating loss for the Inform segment was $8,309,000 compared to an operating profit of $1,441,000 for fiscal 2008 due to the $9,246,000 goodwill impairment charge, unfavorable product sales mix and severance costs of $98,000 as discussed above.

Operating profit decreased to $8,344,000 for fiscal 2008 from operating profit of $12,238,000 for fiscal 2007. The decreased operating profit was primarily due to the lower sales levels, offset somewhat by lower selling and administrative costs in fiscal 2008 as discussed above. The fiscal 2007 operating profit included gains on sales of assets of $518,000. Operating profit for the Protect and Direct segment decreased $2,800,000 to $14,165,000 from $16,965,000 for fiscal 2007, which included a gain on sale of assets of $236,000, primarily due to lower gross margins, offset somewhat by lower selling and administrative expenses as discussed above. Operating profit for the Inform segment decreased $2,004,000 to $1,441,000 for fiscal 2008 due to lower gross margins, offset somewhat by lower selling and administrative costs as discussed above. The fiscal 2007 operating profit included a $282,000 gain on sale of assets.

Net Interest Expense

Net interest expense for fiscal 2009 decreased to $3,501,000 from $4,000,000 in fiscal 2008. The decrease was due primarily to the lower average level of revolving debt as we used the proceeds from the sale of the Intersection Control segment in July 2008 to pay down our revolving bank debt. The interest rate on our bank credit facility is based on prime or LIBOR, plus a margin. Our overall weighted average interest rate was 6.9% as of June 30, 2009 compared to our weighted average rate of 6.0% as of June 30, 2008. The interest rate on the Company's convertible debt is 7%.

Net interest expense for fiscal 2008 decreased to $4,000,000 from $4,459,000 in fiscal 2007. The decrease was due primarily to lower interest rates on our revolving bank debt and due to interest income received on an income tax refund in fiscal 2008.

Income Taxes

The income tax benefit for fiscal 2009 was $4,818,000 compared to the income tax provision for fiscal 2008 of $1,225,000. The effective tax rate was 32% for fiscal 2009 due primarily to the utilization of R&D credits. We expect to provide for income taxes at a rate of 38% for fiscal 2010. However, this rate may be negatively impacted based on management's ongoing evaluation as to whether it is more likely than not that some or all of the deferred tax assets recorded are realizable.

The income tax provision for fiscal 2008 was $1,225,000, reflecting a 28% effective tax rate due to the utilization of R&D credits.

(Loss) Earnings from Continuing Operations

The loss from continuing operations for fiscal 2009 was $10,352,000, or $1.12 per diluted share compared to earnings of $3,119,000, or $0.34 per diluted share, for 2008. Included in the loss for fiscal 2009 was $9,246,000, or $0.74 per diluted share, in goodwill impairment charges and $1,342,000, or $0.09 per diluted share, in severance costs.

Earnings from continuing operations for fiscal 2008 were $3,119,000, or $0.34 per diluted share, compared to earnings of $4,815,000, or $0.54 per diluted share, for 2007.

Loss from Discontinued Operations, Net of Income Taxes

The loss from discontinued operations, net of income taxes for fiscal 2009 was $758,000, or $0.08 per diluted share, compared to a loss of $2,648,000, or $0.29 per diluted share, for fiscal 2008. Included in the loss for fiscal 2009 was a loss of $712,000 from the sale of the Intersection Control business, net of income taxes. Included in the loss for fiscal 2008 was a $1,326,000 loss from the write-down of assets held for sale, net of income taxes.

The loss from discontinued operations, net of income taxes for fiscal 2008 was $2,648,000, or $0.29 per diluted share, compared to a loss of $8,394,000, or $0.94 per diluted share, for 2007. Included in the loss for fiscal 2008 was a $1,326,000 loss from the write-down of assets held for sale, net of income taxes. Included in the net loss for fiscal 2007 was a gain on sales of assets, restructuring costs and related inventory write-offs totaling $6,566,000, net of income taxes.

Net (Loss) Earnings

The net loss for fiscal 2009 was $11,110,000, or $1.20 per diluted share compared to net earnings for fiscal 2008 of $471,000, or $0.05 per diluted share.

Net earnings for fiscal 2008 were $471,000, or $0.05 per diluted share, compared to a net loss of $3,579,000, or $0.40 per diluted share, for 2007.

FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal sources of funds historically have been cash flows from operations and borrowings from banks and other sources. We had cash and cash equivalents of $98,000 as of June 30, 2009. As of June 30, 2009, we had $1,000,000 outstanding against our bank credit facility and $40,000,000 in 7% Convertible Senior Subordinated Notes due February 2025 (the "Convertible Notes"), as discussed further in Note 9 to our Consolidated Financial Statements.

Our current amended bank credit agreement with our senior bank (the "Credit Agreement") provides for a $15 million secured revolving credit facility and includes both fixed and floating interest rate options, at the LIBOR and British Bankers Association LIBOR rate, plus a margin. The Credit Agreement also contains affirmative and negative covenants including requirements that we meet certain consolidated financial criteria including leverage ratios and a fixed charge ratio. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in such agreements.

We were in violation of certain financial covenants as of the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009 and we received waivers from our senior bank for those violations. Accordingly, we amended the Credit Agreement with an amendment dated November 7, 2008. As of December 31, 2008, we were in violation of certain financial covenants, for which we received a waiver and an amendment dated February 9, 2009. This amendment to the Credit Agreement reduced the amount of the revolver commitment from $40 million to $15 million, changed the expiration date from February 2010 to November 1, 2009, prohibited payments for dividends and the purchase of our common stock for the treasury and increased the interest rate margin and certain fees. As of March 31, 2009, we were in violation of certain financial covenants, for which we received a waiver and an amendment dated May 7, 2009. This amendment modified several financial covenants which eliminated certain financial ratio covenants and added a monthly borrowing base formula to restrict borrowings based on eligible accounts receivable, inventory and fixed assets as well as a minimum earnings covenant. We were in compliance with these covenants at June 30, 2009. There are no financial covenants for the quarter ended September 30, 2009. The Credit Agreement expires in November 2009. Our ability to obtain an extension to the Credit Agreement or to successfully negotiate a new bank credit agreement is dependent upon our future performance and may be affected in part by events beyond our control, including the current economic downturn. Reduced cash flows from operations, regardless of cause, may make it more difficult to obtain an extension of our Credit Agreement or negotiate a new bank credit agreement. Continuing uncertainty in the credit markets may affect our ability to access those markets and may increase costs associated with borrowing and issuing debt instruments.

Although the variable interest rates under our revolving credit facility have been volatile due to the current credit environment, the financial effect on us has not been significant as the amount outstanding against the facility was only $1,000,000 as of June 30, 2009. Currently, we do not believe that our operating cash flow needs will require us to significantly increase our net bank borrowings in the near term. Our $40 million of 7% Convertible Notes accounted for the majority of our $41.0 million in outstanding debt as of June 30, 2009.

There are currently no default interest provisions in connection with a default on our Credit Agreement. The provisions of our Credit Agreement and Convertible Notes each include cross-default provisions such that a default on any individual payment obligation greater than $5 million is a default under both agreements.

The holders of our $40,000,000 of 7% Senior Subordinated Convertible Notes may require us to repurchase the Notes in February 2010, which we expect they will do. In connection with the potential put option of the Notes to the Company by its holders on February 15, 2010, we are working with an advisor to explore financing alternatives. We have also taken several actions to reduce our cost structure and we continue to investigate other potential cost savings alternatives. To conserve cash, we have suspended our semiannual dividend and we have reduced capital expenditures.

Based on our preliminary discussions and expected operating results for fiscal 2010, we believe that we will be able to refinance our existing debt obligations including the Notes. However, should we be unsuccessful in obtaining such refinancing on a timely or satisfactory basis or executing other planned actions, the lenders could avail them themselves of remedies under those agreements and there is no . . .