UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|x  | QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934  
|   |                                                                                           
|   | For
  the quarterly period ended March 31, 2009                                           
|  
|or
|  
|o  | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                           
|   | For the transition period
  from                    
  to                                 

Commission File Number 001-08123

QUIXOTE CORPORATION(Exact name of registrant as
specified in its charter)

|                                           |                         
|------------------------------------------ | ------------------------
|Delaware                                   | 36-2675371              
|(State
  or other jurisdiction of          | (I.R.S.
  Employer      
|incorporation
  or organization)           | Identification
  Number)
|                                           |                         
|                                           |                         
|35 East Wacker Drive                       | 60601                   
|Chicago, Illinois                          | (Zip
  Code)            
|(Address
  of principal executive offices) |                         

(312) 467-6755(Registrants
telephone number, including area code)

No Change Former name, former address and former fiscal
year, if changed since last report

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.       Yes x     No o

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files).      Yes o     No
o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.

|                          |                                                 |                              
|------------------------- | ----------------------------------------------- | -----------------------------
|Large accelerated filer o |                                                 | Accelerated
  filer x        
|Non-accelerated filer o   | (Do not check if a smaller
  reporting company) | Smaller
  reporting company o

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).      Yes o
     No x

As of April 30, 2009, there
were 9,296,383 shares of the registrants common stock ($.01-2/3 par value)
outstanding.

---



ITEM 1. FINANCIAL STATEMENTS 
QUIXOTE CORPORATION AND SUBSIDIARIES 
Consolidated Statements of Operations 
(Unaudited)

|                                                               |  |                               |             |      |   |            |  
|-------------------------------------------------------------- |  | ----------------------------- | ----------- | ---- | - | ---------- | -
|                                                               |  | Nine
  Months Ended March 31, |            
|                                                               |  |                               |            
|                                                               |  | 2009                          |             | 2008 |  
|                                                               |  |                               |             |      |  
|                                                               |  |                               |             |      |   |            |  
|Net sales                                                      |  | $                             | 67,301,000  |      | $ | 73,252,000 |  
|Cost of sales                                                  |  |                               | 48,303,000  |      |   | 47,699,000 |  
|                                                               |  |                               |             |      |   |            |  
|Gross profit                                                   |  |                               | 18,998,000  |      |   | 25,553,000 |  
|                                                               |  |                               |             |      |   |            |  
|Operating expenses:                                            |  |                               |             |      |   |            |  
|Selling & administrative                                       |  |                               | 19,419,000  |      |   | 18,563,000 |  
|Research & development                                         |  |                               | 2,394,000   |      |   | 2,603,000  |  
|Severance costs                                                |  |                               | 1,172,000   |      |   |            |  
|Asset impairment charge                                        |  |                               | 9,246,000   |      |   |            |  
|                                                               |  |                               |             |      |   |            |  
|                                                               |  |                               | 32,231,000  |      |   | 21,166,000 |  
|                                                               |  |                               |             |      |   |            |  
|Operating profit (loss)                                        |  |                               | (13,233,000 | )    |   | 4,387,000  |  
|                                                               |  |                               |             |      |   |            |  
|Other income (expense):                                        |  |                               |             |      |   |            |  
|Interest income                                                |  |                               | 7,000       |      |   | 338,000    |  
|Interest expense                                               |  |                               | (2,630,000  | )    |   | (3,306,000 | )
|                                                               |  |                               |             |      |   |            |  
|                                                               |  |                               | (2,623,000  | )    |   | (2,968,000 | )
|                                                               |  |                               |             |      |   |            |  
|Earnings (loss) from continuing operations before income
taxes |  |                               | (15,856,000 | )    |   | 1,419,000  |  
|Income tax provision (benefit)                                 |  |                               | (4,880,000  | )    |   | 539,000    |  
|                                                               |  |                               |             |      |   |            |  
|Earnings (loss) from continuing operations                     |  |                               | (10,976,000 | )    |   | 880,000    |  
|                                                               |  |                               |             |      |   |            |  
|Discontinued operations:                                       |  |                               |             |      |   |            |  
|Loss from operations, net of income taxes                      |  |                               | (46,000     | )    |   | (815,000   | )
|Loss on sale, net of income taxes                              |  |                               | (712,000    | )    |   |            |  
|                                                               |  |                               |             |      |   |            |  
|Loss from discontinued operations, net of income
taxes         |  |                               | (758,000    | )    |   | (815,000   | )
|                                                               |  |                               |             |      |   |            |  
|Net earnings (loss)                                            |  | $                             | (11,734,000 | )    | $ | 65,000     |  
|                                                               |  |                               |             |      |   |            |  
|Per share data - basic:                                        |  |                               |             |      |   |            |  
|Earnings (loss) from continuing
operations                     |  | $                             | (1.19       | )    | $ | 0.10       |  
|Loss from discontinued operations                              |  |                               | (0.08       | )    |   | (0.09      | )
|                                                               |  |                               |             |      |   |            |  
|Net earnings (loss)                                            |  | $                             | (1.27       | )    | $ | 0.01       |  
|                                                               |  |                               |             |      |   |            |  
|Weighted average common shares
outstanding                     |  |                               | 9,226,818   |      |   | 9,087,053  |  
|                                                               |  |                               |             |      |   |            |  
|Per share data - diluted:                                      |  |                               |             |      |   |            |  
|Earnings (loss) from continuing
operations                     |  | $                             | (1.19       | )    | $ | 0.10       |  
|Loss from discontinued operations                              |  |                               | (0.08       | )    |   | (0.09      | )
|                                                               |  |                               |             |      |   |            |  
|Net earnings (loss)                                            |  | $                             | (1.27       | )    | $ | 0.01       |  
|                                                               |  |                               |             |      |   |            |  
|Weighted average common shares
outstanding                     |  |                               | 9,226,818   |      |   | 9,138,763  |  
|                                                               |  |                               |             |      |   |            |  
|Cash dividends declared per share of common stock              |  | $                             | 0.00        |      | $ | 0.20       |  
|                                                               |  |                               |             |      |   |            |  

See Notes to Consolidated
Financial Statements.

2

---



QUIXOTE CORPORATION AND SUBSIDIARIES 
Consolidated Statements of Operations 
(Unaudited)

|                                                       |  |                                |             |      |   |            |  
|------------------------------------------------------ |  | ------------------------------ | ----------- | ---- | - | ---------- | -
|                                                       |  | Three
  Months Ended March 31, |            
|                                                       |  |                                |            
|                                                       |  | 2009                           |             | 2008 |  
|                                                       |  |                                |             |      |  
|                                                      
|Net sales                                              |  | $                              | 22,105,000  |      | $ | 22,869,000 |  
|Cost of sales                                          |  |                                | 16,448,000  |      |   | 15,720,000 |  
|                                                       |  |                                |             |      |   |            |  
|Gross profit                                           |  |                                | 5,657,000   |      |   | 7,149,000  |  
|                                                       |  |                                |             |      |   |            |  
|Operating expenses:                                    |  |                                |             |      |   |            |  
|Selling & administrative                               |  |                                | 6,564,000   |      |   | 6,597,000  |  
|Research & development                                 |  |                                | 674,000     |      |   | 875,000    |  
|Severance costs                                        |  |                                | 329,000     |      |   |            |  
|Asset impairment charge                                |  |                                | 9,246,000   |      |   |            |  
|                                                       |  |                                |             |      |   |            |  
|                                                       |  |                                | 16,813,000  |      |   | 7,472,000  |  
|                                                       |  |                                |             |      |   |            |  
|                                                       |  |                                |             |      |   |            |  
|Operating loss                                         |  |                                | (11,156,000 | )    |   | (323,000   | )
|                                                       |  |                                |             |      |   |            |  
|Other income (expense):                                |  |                                |             |      |   |            |  
|Interest income                                        |  |                                | 7,000       |      |   | 336,000    |  
|Interest expense                                       |  |                                | (848,000    | )    |   | (1,068,000 | )
|                                                       |  |                                |             |      |   |            |  
|                                                       |  |                                | (841,000    | )    |   | (732,000   | )
|                                                       |  |                                |             |      |   |            |  
|Loss from continuing operations before income taxes    |  |                                | (11,997,000 | )    |   | (1,055,000 | )
|Income tax benefit                                     |  |                                | (3,414,000  | )    |   | (400,000   | )
|                                                       |  |                                |             |      |   |            |  
|Loss from continuing operations                        |  |                                | (8,583,000  | )    |   | (655,000   | )
|                                                       |  |                                |             |      |   |            |  
|Discontinued operations:                               |  |                                |             |      |   |            |  
|Loss from operations, net of income taxes              |  |                                |             |      |   | (509,000   | )
|Loss on sale, net of income taxes                      |  |                                |             |      |   |            |  
|                                                       |  |                                |             |      |   |            |  
|Loss from discontinued operations, net of income
taxes |  |                                |             |      |   | (509,000   | )
|                                                       |  |                                |             |      |   |            |  
|Net loss                                               |  | $                              | (8,583,000  | )    | $ | (1,164,000 | )
|                                                       |  |                                |             |      |   |            |  
|Per share data - basic:                                |  |                                |             |      |   |            |  
|Loss from continuing operations                        |  | $                              | (0.93       | )    | $ | (0.07      | )
|Loss from discontinued operations                      |  |                                |             |      |   | (0.06      | )
|                                                       |  |                                |             |      |   |            |  
|Net loss                                               |  | $                              | (0.93       | )    | $ | (0.13      | )
|                                                       |  |                                |             |      |   |            |  
|Weighted average common shares
outstanding             |  |                                | 9,265,533   |      |   | 9,113,751  |  
|                                                       |  |                                |             |      |   |            |  
|Per share data - diluted:                              |  |                                |             |      |   |            |  
|Loss from continuing operations                        |  | $                              | (0.93       | )    | $ | (0.07      | )
|Loss from discontinued operations                      |  |                                |             |      |   | (0.06      | )
|                                                       |  |                                |             |      |   |            |  
|Net loss                                               |  | $                              | (0.93       | )    | $ | (0.13      | )
|                                                       |  |                                |             |      |   |            |  
|Weighted average common shares
outstanding             |  |                                | 9,265,533   |      |   | 9,113,751  |  
|                                                       |  |                                |             |      |   |            |  
|Cash dividends declared per share of common stock      |  | $                              | 0.00        |      | $ | 0.00       |  
|                                                       |  |                                |             |      |   |            |  

See Notes to Consolidated
Financial Statements.

3

---



QUIXOTE CORPORATION AND SUBSIDIARIES 
Consolidated Balance Sheets 
(Unaudited)

|                                                                                                              |  |             |             |            |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---------- | - | ----------- | -
|                                                                                                              |  | March
  31, |             | June
  30, |  
|                                                                                                              |  |             |             |            |  
|                                                                                                              |  | 2009        |             | 2008       |  
|ASSETS                                                                                                        |  |             |             |            |   |             |  
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  |             |             |            |   |             |  
|Current assets:                                                                                               |  |             |             |            |   |             |  
|                                                                                                              |  |             |             |            |   |             |  
|Cash and cash equivalents                                                                                     |  | $           | 128,000     |            | $ | 408,000     |  
|Accounts receivable, net of allowance for doubtful
accounts of
  $780,000 at March 31 and $418,000 at June 30 |  |             | 17,996,000  |            |   | 23,801,000  |  
|                                                                                                              |  |             |             |            |   |             |  
|Inventories, net:                                                                                             |  |             |             |            |   |             |  
|Raw materials                                                                                                 |  |             | 5,481,000   |            |   | 3,943,000   |  
|Work in process                                                                                               |  |             | 4,388,000   |            |   | 5,007,000   |  
|Finished goods                                                                                                |  |             | 8,668,000   |            |   | 10,439,000  |  
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  |             | 18,537,000  |            |   | 19,389,000  |  
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  |             |             |            |   |             |  
|Deferred income tax assets                                                                                    |  |             | 2,608,000   |            |   | 2,608,000   |  
|Other current assets                                                                                          |  |             | 1,090,000   |            |   | 504,000     |  
|Current assets of business held for sale                                                                      |  |             |             |            |   | 20,161,000  |  
|                                                                                                              |  |             |             |            |   |             |  
|Total current assets                                                                                          |  |             | 40,359,000  |            |   | 66,871,000  |  
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  |             |             |            |   |             |  
|Property, plant and equipment, at cost                                                                        |  |             | 45,208,000  |            |   | 43,873,000  |  
|Less accumulated depreciation                                                                                 |  |             | (29,127,000 | )          |   | (27,162,000 | )
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  |             | 16,081,000  |            |   | 16,711,000  |  
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  |             |             |            |   |             |  
|Goodwill                                                                                                      |  |             | 8,139,000   |            |   | 17,385,000  |  
|Intangible assets, net                                                                                        |  |             | 2,029,000   |            |   | 2,206,000   |  
|Deferred income tax assets                                                                                    |  |             | 18,599,000  |            |   | 13,371,000  |  
|Other assets                                                                                                  |  |             | 452,000     |            |   | 890,000     |  
|Assets of business held for sale                                                                              |  |             |             |            |   | 4,109,000   |  
|                                                                                                              |  |             |             |            |   |             |  
|                                                                                                              |  | $           | 85,659,000  |            | $ | 121,543,000 |  
|                                                                                                              |  |             |             |            |   |             |  

See Notes to Consolidated
Financial Statements.

4

---



QUIXOTE CORPORATION AND SUBSIDIARIES 
Consolidated Balance Sheets 
(Unaudited)

|                                                                                                                                 |  |             |             |            |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---------- | - | ----------- | -
|                                                                                                                                 |  | March
  31, |             | June
  30, |  
|                                                                                                                                 |  |             |             |            |  
|                                                                                                                                 |  | 2009        |             | 2008       |  
|LIABILITIES AND
  SHAREHOLDERS EQUITY                                                                                           |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|Current liabilities:                                                                                                             |  |             |             |            |   |             |  
|Current portion of long-term debt                                                                                                |  | $           | 42,850,000  |            | $ | 17,600,000  |  
|Accounts payable                                                                                                                 |  |             | 4,162,000   |            |   | 5,950,000   |  
|Dividends payable                                                                                                                |  |             |             |            |   | 1,829,000   |  
|Accrued expenses                                                                                                                 |  |             | 4,378,000   |            |   | 5,748,000   |  
|Current liabilities of business held for
sale                                                                                    |  |             |             |            |   | 5,520,000   |  
|                                                                                                                                 |  |             |             |            |   |             |  
|Total current liabilities                                                                                                        |  |             | 51,390,000  |            |   | 36,647,000  |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|Long-term debt, net of current portion                                                                                           |  |             |             |            |   | 40,000,000  |  
|Other long-term liabilities                                                                                                      |  |             | 1,032,000   |            |   | 1,059,000   |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             | 52,422,000  |            |   | 77,706,000  |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|Commitments and contingent liabilities (Note 10)                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|Shareholders equity:                                                                                                            |  |             |             |            |   |             |  
|Preferred stock, no par value; authorized 100,000
shares; none issued                                                            |  |             |             |            |   |             |  
|Common stock, par value $.01-2/3; authorized
30,000,000 shares; issued
  11,077,711 shares at March 31 and 11,051,815 at June 30 |  |             | 185,000     |            |   | 184,000     |  
|Capital in excess of par value of common
stock                                                                                   |  |             | 66,467,000  |            |   | 66,498,000  |  
|Accumulated deficit                                                                                                              |  |             | (11,783,000 | )          |   | (49,000     | )
|Treasury stock, at cost, 1,796,894 shares at March
31 and 1,893,552
  shares at June 30                                          |  |             | (21,632,000 | )          |   | (22,796,000 | )
|                                                                                                                                 |  |             |             |            |   |             |  
|Total shareholders equity                                                                                                       |  |             | 33,237,000  |            |   | 43,837,000  |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  |             |             |            |   |             |  
|                                                                                                                                 |  | $           | 85,659,000  |            | $ | 121,543,000 |  
|                                                                                                                                 |  |             |             |            |   |             |  

See Notes to Consolidated
Financial Statements.

5

---



QUIXOTE CORPORATION AND SUBSIDIARIES 
Consolidated Statements of Cash Flows (Unaudited)

|                                                                                                       |  |                            |             |      |   |             |  
|------------------------------------------------------------------------------------------------------ |  | -------------------------- | ----------- | ---- | - | ----------- | -
|                                                                                                       |  | Nine
  Months Ended March, |            
|                                                                                                       |  |                            |            
|                                                                                                       |  | 2009                       |             | 2008 |  
|                                                                                                       |  |                            |             |      |  
|                                                                                                      
|Operating activities:                                                                                  |  |                            |             |      |   |             |  
|Net earnings (loss)                                                                                    |  | $                          | (11,734,000 | )    | $ | 65,000      |  
|Loss on sale, net of tax                                                                               |  |                            | 712,000     |      |   |             |  
|Loss from discontinued operations, net of
tax                                                          |  |                            | 46,000      |      |   | 815,000     |  
|                                                                                                       |  |                            |             |      |   |             |  
|Income (loss) from continuing operations, net of tax                                                   |  |                            | (10,976,000 | )    |   | 880,000     |  
|                                                                                                       |  |                            |             |      |   |             |  
|Adjustments to reconcile net earnings (loss) to net
cash provided by
  (used in) operating activities: |  |                            |             |      |   |             |  
|Asset impairment charge                                                                                |  |                            | 9,246,000   |      |   |             |  
|Depreciation                                                                                           |  |                            | 2,076,000   |      |   | 2,137,000   |  
|Amortization                                                                                           |  |                            | 740,000     |      |   | 605,000     |  
|Deferred income taxes                                                                                  |  |                            | (5,345,000  | )    |   | 40,000      |  
|Provisions for losses on accounts
receivable                                                           |  |                            | 361,000     |      |   | (373,000    | )
|Issuance of stock retirement plan shares                                                               |  |                            | 268,000     |      |   |             |  
|Issuance of stock to 401K plan                                                                         |  |                            | 576,000     |      |   | 798,000     |  
|Share-based compensation expense                                                                       |  |                            | 290,000     |      |   | 579,000     |  
|Changes in operating assets and
liabilities:                                                           |  |                            |             |      |   |             |  
|Accounts receivable                                                                                    |  |                            | 5,444,000   |      |   | 5,567,000   |  
|Inventories                                                                                            |  |                            | 852,000     |      |   | (1,850,000  | )
|Other assets                                                                                           |  |                            | (640,000    | )    |   | (719,000    | )
|Income taxes                                                                                           |  |                            | (132,000    | )    |   | 2,650,000   |  
|Accounts payable and accrued expenses                                                                  |  |                            | (3,347,000  | )    |   | (4,423,000  | )
|Other long-term liabilities                                                                            |  |                            | (27,000     | )    |   | 28,000      |  
|                                                                                                       |  |                            |             |      |   |             |  
|Net cash (used in) provided by operating activities  continuing
  operations                          |  |                            | (614,000    | )    |   | 5,919,000   |  
|Net cash used in operating activities  discontinued
operations                                        |  |                            | (1,545,000  | )    |   | (5,661,000  | )
|                                                                                                       |  |                            |             |      |   |             |  
|Net cash (used in) provided by operating activities                                                    |  |                            | (2,159,000  | )    |   | 258,000     |  
|                                                                                                       |  |                            |             |      |   |             |  
|                                                                                                      
|Investing activities:                                                                                  |  |                            |             |      |   |             |  
|Capital expenditures                                                                                   |  |                            | (1,446,000  | )    |   | (2,965,000  | )
|Patent expenditures                                                                                    |  |                            | (71,000     | )    |   | (65,000     | )
|Proceeds from sale of business                                                                         |  |                            | 20,000,000  |      |   |             |  
|                                                                                                       |  |                            |             |      |   |             |  
|Net cash provided by (used in) investing activities  continuing
  operations                          |  |                            | 18,483,000  |      |   | (3,030,000  | )
|Net cash used in investing activities  discontinued
operations                                        |  |                            | (25,000     | )    |   | (1,239,000  | )
|                                                                                                       |  |                            |             |      |   |             |  
|Net cash provided by (used in) investing activities                                                    |  |                            | 18,458,000  |      |   | (4,269,000  | )
|                                                                                                       |  |                            |             |      |   |             |  
|                                                                                                      
|Financing activities:                                                                                  |  |                            |             |      |   |             |  
|Proceeds from revolving credit agreement                                                               |  |                            | 22,800,000  |      |   | 26,500,000  |  
|Payments on revolving credit agreement                                                                 |  |                            | (37,550,000 | )    |   | (18,500,000 | )
|Payments on notes payable                                                                              |  |                            |             |      |   | (122,000    | )
|Payment of semi-annual cash dividend                                                                   |  |                            | (1,829,000  | )    |   | (3,533,000  | )
|Proceeds from exercise of stock options                                                                |  |                            |             |      |   | 84,000      |  
|Purchase of treasury stock                                                                             |  |                            |             |      |   | (2,000      | )
|                                                                                                       |  |                            |             |      |   |             |  
|Net cash (used in) provided by financing activities                                                    |  |                            | (16,579,000 | )    |   | 4,427,000   |  
|                                                                                                       |  |                            |             |      |   |             |  
|                                                                                                      
|(Decrease) increase in cash and cash equivalents                                                       |  |                            | (280,000    | )    |   | 416,000     |  
|                                                                                                       |  |                            |             |      |   |             |  
|Cash and cash equivalents at beginning of period                                                       |  |                            | 408,000     |      |   | 848,000     |  
|                                                                                                       |  |                            |             |      |   |             |  
|Cash and cash equivalents at end of period                                                             |  | $                          | 128,000     |      | $ | 1,264,000   |  
|                                                                                                       |  |                            |             |      |   |             |  

See Notes to Consolidated
Financial Statements.

6

---



QUIXOTE CORPORATION AND SUBSIDIARIES 
Notes to Consolidated Financial Statements 
(Unaudited)

1. The accompanying
unaudited consolidated financial statements present information in accordance
with generally accepted accounting principles for interim financial information
and applicable rules of Regulation S-X. Accordingly, they do not include all
information or footnotes required by generally accepted accounting principles
for complete financial statements. The June 30, 2008 consolidated balance sheet
as presented was derived from the audited financial statements. The interim
financial statements and notes should be read in conjunction with the
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended June 30, 2008. Management believes the
financial statements include all normal recurring adjustments necessary for a
fair presentation of the results for the interim periods presented.

Certain
balances in fiscal 2008 have been reclassified to conform to the 2009
presentation. Included with the reclassifications are restatements for discontinued
operations. The discontinued operations arise out of the divested Intersection
Control segment.

Recently Adopted and Recently Issued Accounting Pronouncements

In September
2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting
Standard No. 157 (FAS No. 157), Fair Value Measurements. This statement
clarifies the definition of fair value, establishes a framework for measuring
fair value, and expands the disclosures on fair value measurements. In February
2008, the FASB issued FASB Staff Position FSP 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2), which delays the effective date of FAS No. 157
for all nonfinancial assets and nonfinancial liabilities, except those that are
disclosed at fair value in the financial statements on a recurring basis (at
least annually). In October 2008, the FASB issued FASB Staff Position No. FAS
157-3, Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active, which clarifies the application of FAS No. 157 in
determining the fair values of assets or liabilities in a market that is not
active. Staff Position No. FAS 157-3 became effective upon issuance, including
prior periods for which financial statements have not been issued. We adopted
FAS No. 157 related to financial assets and liabilities on July 1, 2008, as
discussed further in footnote 11, and it did not have a material impact on our
consolidated financial statements. We are currently evaluating the impact, if
any, that FAS No. 157 may have on our future consolidated financial statements
related to non-financial assets and liabilities.

In February
2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. FAS No. 159 provides companies with an option to
report selected financial assets and liabilities at fair value. Unrealized
gains and losses on items for which the fair value option has been elected are
reported in earnings at each subsequent reporting date. We adopted FAS No. 159
on July 1, 2008. We did not adopt the fair value option permitted under this
statement and therefore the adoption of this statement had no effect on our
results of operations or financial position.

In March 2008,
the FASB issued FAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an Amendment of FASB Statement 133. FAS No. 161 enhances
required disclosures regarding derivatives and hedging activities, including
enhanced disclosures regarding: (a) how and why an entity uses derivative instruments;
(b) how derivative instruments and related hedged items are accounted for under
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities; and (c) how derivative instruments and related hedged items affect
an entitys financial position, financial performance, and cash flows. Our
adoption of this statement effective January 1, 2009 did not impact our results
of operations or financial position.

7

---



In December
2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations, and
FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements.
FAS No. 141 (revised 2007) requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired. This standard also
requires the fair value measurement of certain other assets and liabilities
related to the acquisition such as contingencies and research and development.
FAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be
reported as equity in the consolidated financial statements. Consolidated net
income should include the net income for both the parent and the noncontrolling
interest with disclosure of both amounts on the consolidated statement of
income. The calculation of earnings per share will continue to be based on
income amounts attributable to the parent. In April 2009, the FASB issued FSP
141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies. FSP 141(R)-1 amends and clarifies
issues that arose regarding initial recognition and measurement, subsequent
measurement and accounting and disclosure of assets and liabilities arising
from contingencies in a business combination. The effective date for both
Statements and FSP 141(R)-1 is the beginning of our fiscal 2010. We do not
expect the adoption of FAS No. 141 (revised 2007), FSP 141(R)-1 and FAS No. 160
to have an impact on our results of operations or financial position, however,
future transactions will need to be evaluated under the requirements of these
standards.

In April 2008,
the FASB issued Staff Position (FSP) No. FAS 142-3, Determination of the
Useful Life of Intangible Assets (FSP 142-3). This guidance is intended to
improve the consistency between the useful life of a recognized intangible
asset under FAS 142, Goodwill and Other Intangible Assets and the period cash
flows used to measure the fair value of the asset under FAS 141R when the
underlying arrangement includes renewal or extension of terms that would
require substantial costs or result in a material modification to the asset
upon renewal or extension. Companies estimating the useful life of a recognized
intangible asset must now consider their historical experience in renewing or
extending similar arrangements or, in the absence of historical experience,
must consider assumptions that market participants would use about renewal or
extension as adjusted for FAS 142s entity-specific factors. The effective date
for FAS 142-3 is the beginning of our fiscal 2010. We do not expect the
adoption of this statement to have a material effect on our results of operations
or financial position.

In May 2008,
the FASB issued FSP Accounting Principles Board (APB) 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Settlement) (FSP APB 14-1). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuers non-convertible debt borrowing rate. The effective date
for FSP APB 14-1 is the beginning of our fiscal 2010. We are currently
evaluating the impact that the adoption of FSP APB 14-1 will have on our
results of operations and financial position.

In May 2008,
the FASB issued FAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (FAS No. 162). FAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). FAS No. 162 will become effective 60 days following the SECs
approval of the Public Company Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. We do not currently expect the adoption of FAS No. 162 to have a
material effect on our results of operations or financial position.

8

---



In April 2009,
the FASB issued three new accounting standards which are required to be adopted
no later than periods ending after June 15, 2009, which will be the beginning
of our fiscal 2010. We are currently evaluating the impact of the following:

i) FASB Staff
Position FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP FAS 157-4), which provides
guidelines for making fair value measurements more consistent with the
principles presented in SFAS 157. FSP FAS 157-4 provides additional
authoritative guidance in determining whether a market is active or inactive,
and whether a transaction is distressed, is applicable to all assets and
liabilities (i.e. financial and nonfinancial) and will require enhanced
disclosures.

ii) FASB Staff
Position FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments provides additional guidance to provide greater
clarity about the credit and noncredit component of an other-than-temporary
impairment event and to improve presentation and disclosure of other than
temporary impairments in financial statements.

iii) FASB
Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments amends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial statements.
This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to
require those disclosures in all interim financial statements.

2. 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, toll road monitoring
systems and parking detection devices. We have reflected the results of those
operations as discontinued operations. We recognized a loss on sale of the
Intersection Control segment of $712,000, net of income taxes of $436,000, in
the first quarter of fiscal 2009. Also during that period in connection with
the sale, approximately $11 million in deferred tax assets were recorded as net
operating losses which were classified as other temporary differences as of
June 30, 2008. These amounts were not classified as assets held for sale within
our consolidated balance sheet as of June 30, 2008 as the net operating losses
can be used to offset future consolidated income.

The results of
discontinued operations are as follows:

|                                                                    |  |                               |           |                                 |   |            |   |   |            |  
|------------------------------------------------------------------- |  | ----------------------------- | --------- | ------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                    |  | Three
  monthsended March 31, |           | Nine
  months ended
  March 31, |  
|                                                                    |  | 2008                          |           | 2009                            |   | 2008       |  
|                                                                    |  |                               |           |                                 |   |            |  
|                                                                   
|Net sales                                                           |  | $                             | 7,001,000 |                                 | $ | 1,732,000  |   | $ | 22,717,000 |  
|                                                                    |  |                               |           |                                 |   |            |   |   |            |  
|Loss from operations of discontinued operations before income
taxes |  | $                             | (822,000  | )                               | $ | (75,000    | ) | $ | (1,314,000 | )
|Loss from sale of assets of business                                |  |                               |           |                                 |   | (1,148,000 | ) |   |            |  
|                                                                    |  |                               |           |                                 |   |            |   |   |            |  
|Loss before taxes                                                   |  |                               | (822,000  | )                               |   | (1,223,000 | ) |   | (1,314,000 | )
|Income tax benefit                                                  |  |                               | (313,000  | )                               |   | (465,000   | ) |   | (499,000   | )
|                                                                    |  |                               |           |                                 |   |            |   |   |            |  
|Loss from discontinued operations, net of income tax
benefit        |  | $                             | (509,000  | )                               | $ | (758,000   | ) | $ | (815,000   | )
|                                                                    |  |                               |           |                                 |   |            |   |   |            |  

9

---



Assets and
liabilities of the Intersection Control segment were classified as assets and
liabilities held for sale within our consolidated balance sheet as of June 30,
2008 and consisted of the following:

|                                            |  |   |            | 
|------------------------------------------- |  | - | ---------- | 
|Assets:                                     |  |   |            | 
|Current assets                              |  |   |            | 
|Accounts Receivable, net                    |  | $ | 6,270,000  | 
|Inventories                                 |  |   | 13,134,000 | 
|Other current assets                        |  |   | 757,000    | 
|                                            |  |   |            | 
|Total current assets                        |  |   | 20,161,000 | 
|                                            |  |   |            | 
|Property, plant and equipment               |  |   | 2,474,000  | 
|Other assets                                |  |   | 1,635,000  | 
|                                            |  |   |            | 
|Total assets of business held for sale      |  | $ | 24,270,000 | 
|                                            |  |   |            | 
|                                            |  |   |            | 
|Liabilities:                                |  |   |            | 
|Total liabilities of business held for sale |  | $ | 5,520,000  | 
|                                            |  |   |            | 

As of March
31, 2009, there were no assets of the Intersection Control segment due to the
sale of the segment on July 25, 2008.

3. Share-based
compensation cost recognized in the nine and three-month periods ended March
31, 2009 and 2008 includes compensation cost for share-based awards based on
the grant date fair value estimated in accordance with the provisions of SFAS
No. 123(R). As of March 31, 2009, we have 469,663 common shares reserved for
future grants from our stock option and award plans. Our stock option and award
plans are discussed in further detail in our Annual Report on Form 10-K for the
year ended June 30, 2008.

Share-based Compensation Expense

The
share-based compensation cost that has been charged to Selling and
Administrative Expense for stock options and restricted stock awards under our
stock option and award plans was  $104,000 and $193,000 for the three-month periods
ending March 31, 2009 and 2008, respectively and
 $290,000 and $579,000 for the nine-month
periods ended March 31, 2009 and 2008, respectively. As of March 31, 2009, the
total compensation cost related to unvested stock options and restricted stock
granted under our stock option plans not yet recognized was approximately $441,000.
This cost will be amortized on a straight-line basis over a weighted average
period of approximately 1.6 years and will be adjusted for subsequent changes
in estimated forfeitures. The 214,433 unvested stock options outstanding at
March 31, 2009 had a weighted-average fair value of $2.25. The 13,532 shares of
restricted stock unvested at March 31, 2009 had a fair value of $19.52.

Determining Fair Value

The fair value
of stock options granted is estimated using the Black-Scholes option-pricing
model that uses the assumptions noted below. Expected volatilities are based on
historical volatility of the Companys stock. We use historical data to
estimate option exercise patterns, employee termination and forfeiture rates
within the valuation model; separate groups of optionees that have similar
historical exercise behavior are considered separately for valuation purposes.
The expected term of options granted is derived from the output of the option
valuation model and represents the period of time that options granted are
expected to be outstanding; the range given below results from certain groups
of employees exhibiting different behavior. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of the grant. The expected dividend yield is
determined by dividing the current level of per share dividend by the grant
date stock price. We do not incorporate changes in dividends anticipated by
management unless those changes have been communicated to marketplace
participants.

10

---



|                                       |  |                             |  |        
|-------------------------------------- |  | --------------------------- |  | -------
|                                       |  | Nine Months Ended March 31,
|                                       |  |                            
|                                       |  | 2009                        |  | 2008   
|                                       |  |                             |  |        
|Risk free interest rate                |  | 2.9%                        |  | 3.8%   
|Expected dividend yield                |  | 4.57%                       |  | 2.11%  
|Weighted average expected volatility   |  | 39%                         |  | 37%    
|Expected term                          |  | 3.9  6.0 yrs               |  | 6.0 yrs
|Weighted average expected term         |  | 4.3 yrs                     |  | 6.0 yrs
|Weighted average grant date fair value |  | $1.68                       |  | $6.35  

The fair value
of the options granted is being amortized on a straight-line basis over the
requisite service period, which is generally the vesting period.

The fair value
of the restricted stock granted in the first quarter of fiscal 2008 was
determined and fixed based on the price of our stock at the time of the grant.
The fair value of the restricted stock awarded is being amortized on a
straight-line basis over the requisite service period, which is the vesting
period.

Stock Option and Restricted Stock Activity

Information
with respect to stock option activity under our plans is as follows:

|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|----------------------------- |  | --------------- | -------- | -------------------------------------- | - | ---------------------------------------------------- |  | ----------------------------- | ----------- |  | - | - | 
|                              |  | Common
  Shares |          | Weighted-
  Average
  Exercise
  Price |   | Weighted-
  Average
  Remaining
  Contractual
  Term |  | Aggregate
  Intrinsic
  Value |            
|                              |  |                 |          |                                        |   |                                                      |  |                               |            
|                             
|Outstanding at July 1, 2007   |  |                 | 859,203  |                                        | $ | 18.54                                                |  |                               |             |  |   |   | 
|Granted                       |  |                 | 20,000   |                                        | $ | 18.93                                                |  |                               |             |  |   |   | 
|Exercised                     |  |                 | (20,000  | )                                      | $ | 8.34                                                 |  |                               |             |  |   |   | 
|Cancelled or expired          |  |                 | (26,800  | )                                      | $ | 21.06                                                |  |                               |             |  |   |   | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|Outstanding at March 31, 2008 |  |                 | 832,403  |                                        | $ | 18.72                                                |  |                               | 2.7
  Years |  | $ | 0 | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|Outstanding at July 1, 2008   |  |                 | 830,670  |                                        | $ | 18.72                                                |  |                               |             |  |   |   | 
|Granted                       |  |                 | 172,100  |                                        | $ | 7.36                                                 |  |                               |             |  |   |   | 
|Exercised                     |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|Cancelled or expired          |  |                 | (102,434 | )                                      | $ | 17.39                                                |  |                               |             |  |   |   | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|Outstanding at March 31, 2009 |  |                 | 900,336  |                                        | $ | 16.70                                                |  |                               | 2.4
  Years |  | $ | 0 | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 
|Vested at March 31, 2009      |  |                 | 685,903  |                                        | $ | 18.89                                                |  |                               | 1.8
  Years |  | $ | 0 | 
|                              |  |                 |          |                                        |   |                                                      |  |                               |             |  |   |   | 

Options
outstanding as of March 31, 2009 are exercisable as follows: 685,903 currently,
116,369 within one year, 49,029 in two years and 49,035 in three years. As of
March 31, 2008, 690,512 options were exercisable. During the nine-month periods
ended March 31, 2009 and 2008, the following stock option activity occurred
under our plans:

|                                                   |  |                     |         |      |   |         | 
|-------------------------------------------------- |  | ------------------- | ------- | ---- | - | ------- | 
|                                                   |  | Nine
  Months Ended |        
|                                                   |  | March
  31,         |        
|                                                   |  |                     |        
|                                                   |  | 2009                |         | 2008 |  
|                                                   |  |                     |         |      |  
|                                                   |  |                     |         |      |   |         | 
|Total intrinsic value of
  stock options exercised |  |                     |         |      | $ | 153,000 | 
|Total fair value of stock
  options vested         |  | $                   | 356,000 |      | $ | 747,000 | 

11

---



Information
with respect to restricted stock activity under our plans is as follows:

|                            |  |                    |        |                                               |   |       | 
|--------------------------- |  | ------------------ | ------ | --------------------------------------------- | - | ----- | 
|                            |  | Number
  of Shares |        | Weighted-
  Average
  Grant Date
  Fair Value |  
|                            |  |                    |        |                                               |  
|                           
|Outstanding at July 1, 2007 |  |                    |        |                                               |   |       | 
|Restricted stock granted    |  |                    | 29,100 |                                               | $ | 19.52 | 
|Restricted stock vested     |  |                    |        |                                               |   |       | 
|Cancelled or expired        |  |                    |        |                                               |   |       | 
|                            |  |                    |        |                                               |   |       | 
|Unvested at March 31, 2008  |  |                    | 29,100 |                                               | $ | 19.52 | 
|                            |  |                    |        |                                               |   |       | 
|                            |  |                    |        |                                               |   |       | 
|Outstanding at July 1, 2008 |  |                    | 29,100 |                                               | $ | 19.52 | 
|Restricted stock granted    |  |                    |        |                                               |   |       | 
|Restricted stock vested     |  |                    | (9,102 | )                                             | $ | 19.52 | 
|Cancelled or expired        |  |                    | (6,466 | )                                             | $ | 19.52 | 
|                            |  |                    |        |                                               |   |       | 
|Unvested at March 31, 2009  |  |                    | 13,532 |                                               | $ | 19.52 | 
|                            |  |                    |        |                                               |   |       | 
|                            |  |                    |        |                                               |   |       | 
|Vested at March 31, 2009    |  |                    | 9,102  |                                               | $ | 19.52 | 
|                            |  |                    |        |                                               |   |       | 

We also had a
retirement stock award program for certain of our key executives which ended
with the final issuance of shares in July 2008. The retirement stock award
program resulted in a charge to earnings for compensation expense of $268,000
for the nine months ended March 31, 2009 and $160,000 for the nine months ended
March 31, 2008.

4. The income tax
benefit for the current quarter is based upon the estimated effective income
tax rate for the full fiscal year.

On July 1,
2007 we adopted FASB Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 as
required under U.S. generally accepted accounting principles. We had
unrecognized tax benefits of $227,000 as of March 31, 2009 and June 30, 2008,
of which $189,000, if recognized, would favorably affect our income tax rate.
The tax liability under FIN 48 is recorded in accrued expenses.

We record the
interest related to uncertain tax positions as interest expense during the
period incurred. Penalties related to uncertain tax positions, which have historically
been immaterial, are recorded as part of the income tax expense during the
period incurred. In accrued expenses, we had accrued $39,000 for interest and
$6,000 for penalties as of March 31, 2009 and $37,000 for interest and $5,000
for penalties as of June 30, 2008.

We file income
tax returns in jurisdictions of operation, including federal, state and
international jurisdictions. At times, we are subject to audits in these
jurisdictions. The final resolution of any such tax audit could result in either
a reduction in our accruals or an increase in our income tax provision, both of
which could have an impact on consolidated results of operations in any given
period. U.S. federal income tax returns have been audited through fiscal 2004.
The tax years 2005 through 2008 remain open to examination by the other major
taxing authorities to which we are subject. We currently have no significant audits in
process. We do not anticipate significant changes in the unrecognized tax
benefits within the next twelve months as the result of examinations or lapse
of statues of limitations to be material to our results of operations or
financial position.

12

---



5. Operating results
for the first nine months of fiscal 2009 are not necessarily indicative of the
performance for the entire year. Our business is generally seasonal with a
higher level of sales in the fourth fiscal quarter.

6.The computation
of basic and diluted earnings per share is as follows:

|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|---------------------------------------------------- |  | ------------------------------- | ----------- | -------------------------------- | - | --------- | - | ---- | ---------- | - | - | ---------- | -
|                                                     |  | Nine
  Months Ended
  March 31, |             | Three
  Months Ended
  March 31, |  
|                                                     |  |                                 |             |                                  |  
|                                                     |  | 2009                            |             | 2008                             |   | 2009      |   | 2008 |           
|                                                     |  |                                 |             |                                  |   |           |   |      |           
|                                                    
|Numerator:                                           |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Earnings (loss) from continuing operations           |  | $                               | (10,976,000 | )                                | $ | 880,000   |   | $    | (8,583,000 | ) | $ | (655,000   | )
|Loss from discontinued operations                    |  |                                 | (46,000     | )                                |   | (815,000  | ) |      |            |   |   | (509,000   | )
|Loss on sale of discontinued operations              |  |                                 | (712,000    | )                                |   |           |   |      |            |   |   |            |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Net earnings (loss)                                  |  | $                               | (11,734,000 | )                                | $ | 65,000    |   | $    | (8,583,000 | ) | $ | (1,164,000 | )
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|                                                    
|Denominator:                                         |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Weighted average shares outstanding-basic            |  |                                 | 9,226,818   |                                  |   | 9,087,053 |   |      | 9,265,533  |   |   | 9,113,751  |  
|Effect of dilutive securities- common stock options  |  |                                 |             |                                  |   | 51,710    |   |      |            |   |   |            |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Weighted average shares outstanding-diluted          |  |                                 | 9,226,818   |                                  |   | 9,138,763 |   |      | 9,265,533  |   |   | 9,113,751  |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Earnings (loss) per share of common stock - basic:   |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Earnings (loss) from continuing operations           |  | $                               | (1.19       | )                                | $ | 0.10      |   | $    | (0.93      | ) | $ | (0.07      | )
|Loss from discontinued operations                    |  |                                 |             |                                  |   | (0.09     | ) |      |            |   |   | (0.06      | )
|Loss on sale of discontinued operations              |  |                                 | (0.08       | )                                |   |           |   |      |            |   |   |            |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Net earnings (loss)                                  |  | $                               | (1.27       | )                                | $ | 0.01      |   | $    | (0.93      | ) | $ | (0.13      | )
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Earnings (loss) per share of common stock -
diluted: |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Earnings (loss) from continuing operations           |  | $                               | (1.19       | )                                | $ | 0.10      |   | $    | (0.93      | ) | $ | (0.07      | )
|Loss from discontinued operations                    |  |                                 |             |                                  |   | (0.09     | ) |      |            |   |   | (0.06      | )
|Loss on sale of discontinued operations              |  |                                 | (0.08       | )                                |   |           |   |      |            |   |   |            |  
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  
|Net earnings (loss)                                  |  | $                               | (1.27       | )                                | $ | 0.01      |   | $    | (0.93      | ) | $ | (0.13      | )
|                                                     |  |                                 |             |                                  |   |           |   |      |            |   |   |            |  

There were
outstanding options to purchase common stock at prices that exceeded the
average market price for the income statement periods. These options have been
excluded from the computation of diluted earnings per share for the three and nine-month
periods ended March 31, 2009 and 2008 and are as follows:

|                                 |  |                                  |         |                                   |   |         |  |      |         |  |   |         | 
|-------------------------------- |  | -------------------------------- | ------- | --------------------------------- | - | ------- |  | ---- | ------- |  | - | ------- | 
|                                 |  | Nine
  Months Ended 
  March 31, |         | Three
  Months Ended 
  March 31, |  
|                                 |  |                                  |         |                                   |  
|                                 |  | 2009                             |         | 2008                              |   | 2009    |  | 2008 |        
|                                 |  |                                  |         |                                   |   |         |  |      |        
|Average exercise price per share |  | $                                | 16.98   |                                   | $ | 21.17   |  | $    | 16.70   |  | $ | 19.98   | 
|Number of shares                 |  |                                  | 880,336 |                                   |   | 507,733 |  |      | 900,336 |  |   | 677,403 | 

In addition,
employee stock options totaling 18,903 shares for the three-month period ending
March 31, 2008 were not included in the diluted weighted average shares
calculation because the effects of these securities were anti-dilutive.

13

---



7. Accumulated other comprehensive income
consisted of the following as of March 31, 2008:

| |                                             |  |   |         |  
| | ------------------------------------------- |  | - | ------- | -
| | Unrealized gain on
  derivative instrument: |  |   |         |  
| | Beginning balance  July 1                  |  | $ | 109,000 |  
| | Amortization to earnings                    |  |   | (89,000 | )
| |                                             |  |   |         |  
| |                                             |  |   |         |  
| | Total accumulated
  comprehensive income    |  | $ | 20,000  |  
| |                                             |  |   |         |  

8. We have two
continuing reportable segments, one which manufactures and sells products that
Protect and Direct and one which manufactures and sells products that Inform.
In July, 2008, our Intersection Control segment was divested. The operations
from this business segment have been included in discontinued operations, and
are discussed in more detail in Note 2 on dispositions. The segment information included below has
been reclassified to reflect such discontinued operations.

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 barriers as well as highway delineators. The products within this segment
absorb and dissipate the force of impact in collisions between vehicles and
fixed roadside objects as well as prevent collisions and help to control the
flow of traffic by directing or guiding. The primary product lines within the
Inform segment include highway advisory radio systems; advanced sensing
products which measure distance, count and classify vehicles; weather sensing
systems and other transportation equipment. The products within this segment
provide information to prevent collisions from occurring and to ease traffic
congestion.

The majority
of our sales of highway and transportation safety products are to distributors
and contractors who then provide product and services to federal, state and
local governmental units. Our business is conducted principally in the United
States, our country of domicile, with sales outside the United States of
$19,514,000 and $16,330,000 for the nine months ended March 31, 2009 and 2008,
respectively, and $6,108,000 and $4,326,000 for the three months ended March
31, 2009 and 2008, respectively. Inter-company sales between segments
represented less than one percent of consolidated net sales in each of those
periods.

Our reportable
segments are based on similarities in products and represent the aggregation of
operating units for which financial information is regularly evaluated in
determining resource allocation and assessing performance. We evaluate the
performance of our segments and allocate resources to them based on operating
income as well as other factors. Operating income is determined by deducting
operating expenses from all revenues. In computing operating income, none of
the following has been added or deducted: unallocated corporate expenses,
interest income or expense, other income or loss or income tax provisions or
benefits. Corporate assets consist primarily of cash and cash equivalents,
depreciable assets and income tax assets. Accounting policies for the segments
are the same as those for the Company.

The following
table presents financial information about our continuing operations by segment
for the nine and three-month periods ended March 31, 2009 and 2008 along with
the items necessary to reconcile the segment information to the totals reported
in the consolidated financial statements.

14

---



|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|------------------------------------------------------------- |  | ----------------------- | ---------- | ------ | - | -------------------------- | - | ----- | ---------- | - | - | ----------- | -
|                                                              |  | Protect
  and 
  Direct |            | Inform |   | Unallocated
  
  Corporate |   | Total |           
|                                                              |  |                         |            |        |   |                            |   |       |           
|2009                                                          |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|NINE MONTHS                                                   |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Net sales from external customers                             |  | $                       | 51,244,000 |        | $ | 16,057,000                 |   |       |            |   | $ | 67,301,000  |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Operating profit (loss)                                       |  | $                       | 1,388,000  |        | $ | (8,992,000                 | ) | $     | (5,629,000 | ) | $ | (13,233,000 | )
|Unallocated interest and other                                |  |                         |            |        |   |                            |   |       | (2,623,000 | ) |   | (2,623,000  | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Total earnings (loss) from continuing operations before
taxes |  | $                       | 1,388,000  |        | $ | (8,992,000                 | ) | $     | (8,252,000 | ) | $ | (15,856,000 | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Identifiable assets                                           |  | $                       | 50,579,000 |        | $ | 13,089,000                 |   | $     | 21,991,000 |   | $ | 85,659,000  |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|THREE MONTHS                                                  |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Net sales from external customers                             |  | $                       | 16,241,000 |        | $ | 5,864,000                  |   |       |            |   | $ | 22,105,000  |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Operating loss                                                |  | $                       | (509,000   | )      | $ | (9,067,000                 | ) | $     | (1,580,000 | ) | $ | (11,156,000 | )
|Unallocated interest and other                                |  |                         |            |        |   |                            |   |       | (841,000   | ) |   | (841,000    | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Total loss from continuing operations before taxes            |  | $                       | (509,000   | )      | $ | (9,067,000                 | ) | $     | (2,421,000 | ) | $ | (11,997,000 | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|2008                                                          |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|NINE MONTHS                                                   |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Net sales from external customers                             |  | $                       | 56,815,000 |        | $ | 16,437,000                 |   |       |            |   | $ | 73,252,000  |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Operating profit (loss)                                       |  | $                       | 8,383,000  |        | $ | 1,336,000                  |   | $     | (5,332,000 | ) | $ | 4,387,000   |  
|Unallocated interest and other                                |  |                         |            |        |   |                            |   |       | (2,968,000 | ) |   | (2,968,000  | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Total earnings (loss) from continuing operations before
taxes |  | $                       | 8,383,000  |        | $ | 1,336,000                  |   | $     | (8,300,000 | ) | $ | 1,419,000   |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Identifiable assets                                           |  | $                       | 55,447,000 |        | $ | 22,520,000                 |   | $     | 18,178,000 |   | $ | 96,145,000  |  
|Assets held for sale                                          |  |                         |            |        |   |                            |   |       | 23,996,000 |   |   | 23,996,000  |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Total identifiable assets                                     |  | $                       | 55,447,000 |        | $ | 22,520,000                 |   | $     | 42,174,000 |   | $ | 120,141,000 |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|THREE MONTHS                                                  |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Net sales from external customers                             |  | $                       | 17,753,000 |        | $ | 5,116,000                  |   |       |            |   | $ | 22,869,000  |  
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Operating profit (loss)                                       |  | $                       | 1,383,000  |        | $ | 12,000                     |   | $     | (1,718,000 | ) | $ | (323,000    | )
|Unallocated interest and other                                |  |                         |            |        |   |                            |   |       | (732,000   | ) |   | (732,000    | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  
|Total earnings (loss) from continuing operations before
taxes |  | $                       | 1,383,000  |        | $ | 12,000                     |   | $     | (2,450,000 | ) | $ | (1,055,000  | )
|                                                              |  |                         |            |        |   |                            |   |       |            |   |   |             |  

9.Intangible assets
consist of the following:

| |  |  |  |  |  | 
| |  |  |  |  |  | 
| |  |  |  |  |  | 
| |  |  |  |  |  | 
| |  | 
|

|                              |  |                           |           |                            |   |                           |  |                           |           |                            |   |                           |  |   |           |  |   |           | 
|----------------------------- |  | ------------------------- | --------- | -------------------------- | - | ------------------------- |  | ------------------------- | --------- | -------------------------- | - | ------------------------- |  | - | --------- |  | - | --------- | 
|                              |  | March
  31, 2009          |           | June
  30, 2008            |  
|                              |  |                           |           |                            |  
|                              |  | Gross
  Carrying
  Amount |           | Accumulated
  Amortization |   | Net
  Intangible
  Assets |  | Gross
  Carrying
  Amount |           | Accumulated
  Amortization |   | Net
  Intangible
  Assets | 
|                              |  |                           |           |                            |   |                           |  |                           |           |                            |   |                           | 
|Amortized intangible assets:  |  |                           |           |                            |   |                           |  |                           |           |                            |   |                           |  |   |           |  |   |           | 
|Patents and licenses          |  | $                         | 3,817,000 |                            | $ | 2,333,000                 |  | $                         | 1,484,000 |                            | $ | 3,746,000                 |  | $ | 2,160,000 |  | $ | 1,586,000 | 
|Technology and installed base |  |                           | 1,271,000 |                            |   | 899,000                   |  |                           | 372,000   |                            |   | 1,271,000                 |  |   | 849,000   |  |   | 422,000   | 
|Customer relationships        |  |                           | 200,000   |                            |   | 200,000                   |  |                           |           |                            |   | 200,000                   |  |   | 200,000   |  |   |           | 
|Trade names                   |  |                           | 330,000   |                            |   | 157,000                   |  |                           | 173,000   |                            |   | 330,000                   |  |   | 132,000   |  |   | 198,000   | 
|Other                         |  |                           | 20,000    |                            |   | 20,000                    |  |                           |           |                            |   | 20,000                    |  |   | 20,000    |  |   |           | 
|                              |  |                           |           |                            |   |                           |  |                           |           |                            |   |                           |  |   |           |  |   |           | 
|Total                         |  | $                         | 5,638,000 |                            | $ | 3,609,000                 |  | $                         | 2,029,000 |                            | $ | 5,567,000                 |  | $ | 3,361,000 |  | $ | 2,206,000 | 
|                              |  |                           |           |                            |   |                           |  |                           |           |                            |   |                           |  |   |           |  |   |           | 

15

---



Intangible
amortization expense was $248,000 and $235,000, respectively, in the nine-month
periods ended March 31, 2009 and 2008. The estimated amortization expense for
this fiscal year ended June 30, 2009 and for the five fiscal years subsequent
to 2009 is as follows: $326,000, $324,000, $322,000, $268,000, $264,000 and
$254,000. The carrying amount of goodwill consists of $8,139,000 for the
Protect and Direct segment as of March 31, 2009 and as of June 30, 2008 and
$9,246,000 for the Inform segment as of June 30, 2008. The remaining goodwill of
the Inform segment was written off in the current quarter as described in
footnote 13.

10. Disclosures
regarding guarantees, commitments and contingencies are provided below.

Lease
Commitments

We use various
leased facilities and equipment in our operations. The terms for these leased
assets vary depending on the lease agreements. These operating leases may
include options for renewal and we may guarantee the performance of our
obligations under the leases. Annual minimum future rental payments for lease
commitments will be approximately $352,000 for the remainder of fiscal year
2009, a total of $2,265,000 in fiscal years 2010 to 2011, a total of $239,000
in fiscal years 2012 to 2013 and $106,000 thereafter, for an aggregate of
$2,962,000.

Product Warranty
Liability

We warrant to
the original purchaser of our products that we will, at our option, repair or
replace, without charge, such products if they fail due to a manufacturing
defect. The term of these warranties vary by product, the majority of which
range from 90 days to 5 years. We accrue for product warranties, when, based on
available information, it is probable that customers will make claims under
warranties relating to products that have been sold, and a reasonable estimate
of the costs can be made. Our estimated product warranty liability for the
nine-month periods ended March 31 is as follows:

| |                                                                           |  |      |          |      |   |          |  
| | ------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
| |                                                                           |  | 2009 |          | 2008 |  
| |                                                                           |  |      |          |      |  
| |                                                                           |  |      |          |      |   |          |  
| | Beginning Balance - July 1                                                |  | $    | 130,000  |      | $ | 231,000  |  
| | Warranties issued                                                         |  |      | 153,000  |      |   | 358,000  |  
| | Repairs, replacements and settlements                                     |  |      | (127,000 | )    |   | (351,000 | )
| | Changes in liability for pre-existing warranties,
including
  expirations |  |      |          |      |   | (50,000  | )
| |                                                                           |  |      |          |      |   |          |  
| |                                                                           |  |      |          |      |   |          |  
| | Ending balance  March 31                                                 |  | $    | 156,000  |      | $ | 188,000  |  
| |                                                                           |  |      |          |      |   |          |  

Legal

We are
involved in several pending judicial proceedings for product liability and
other damages arising out of the conduct of our business. We record loss
contingencies where appropriate within the guidelines established by Statement
of FAS No. 5 Accounting for Contingencies. While the outcome of litigation is
subject to uncertainties, we believe, after consultation with counsel, that the
outcome of these proceedings, based on current available information and after
taking into account the availability and limits of our insurance coverage, will
not have a material effect on our consolidated financial condition and results
of operations.

Executive Agreements

We have
agreements with certain named executives which are designed to retain the
services of key employees and to provide for continuity of management in the
event of an actual or threatened change in control of the Company. Upon
occurrence of a triggering event after a change in control, as defined, we
would be liable for payment of benefits under these agreements, of
approximately $4.1 million. A portion of these benefits will fluctuate based
upon the share price at the time of the triggering event. We also have
employment agreements with certain key executives which are designed to retain
the services of those key employees. Upon occurrence of a triggering event
under these agreements, we would be liable for payment of certain benefits
under these agreements of approximately $1.6 million.

16

---



We have
by-laws and agreements under which we indemnify our directors and officers from
liability for certain events or occurrences while the directors or officers
are, or were, serving at the Companys request in such capacities. The term of
the indemnification period is for the directors or officers lifetime. We
believe that any obligations relating to this indemnification are predominantly
covered by insurance subject to certain exclusions and deductibles.
Historically, we have not made payments under these executive agreements, and
no amount has been accrued in the accompanying consolidated financial
statements.

Indemnification of Lenders and Agents Under Credit Facilities

Under our
credit facility, we have agreed to indemnify our lender against costs or losses
resulting from changes in laws and regulations which would increase the
lenders costs, and from any legal action brought against the lender related to
the use of loan proceeds. These indemnification provisions generally extend for
the term of the credit facility and do not provide for any limit on the maximum
potential liability. Historically, we have not made any significant
indemnification payments under such agreements and no amount has been accrued
in the accompanying consolidated financial statements with respect to these
indemnification guarantees.

Bid and Performance Bonds

We have
entered into bid and performance related bonds associated with various
contracts. Potential payments due under these bonds are related to our
performance under the applicable contract. The total amount of bid and
performance related bonds that were available and undrawn was $3,111,000 as of
March 31, 2009 and $2,684,000 as of June 30, 2008. Historically, customers have
not drawn upon these instruments due to non-performance, and no amount has been
accrued in the accompanying consolidated financial statements.

Other Commitments

We have
standby letters of credit covering potential workers compensation liabilities.
The total amount of standby letters of credit that were outstanding was
$1,120,000 as of March 31, 2009 and $1,012,000 as of June 30, 2008. We have
included $557,000 in accrued liabilities for potential workers compensation
liabilities as of March 31, 2009.

We have
certain non-cancelable royalty agreements, which contain certain minimum
payments in the aggregate of $1,110,000 through fiscal year 2012. We have
included $207,000 in accrued liabilities for current obligations relating to
royalty agreements as of March 31, 2009.

11. On July 1, 2008,
we adopted FAS No. 157, Fair Value Measurements, related to financial assets
and liabilities. In accordance with FASB Staff Position No. FAS 157-2,
Effective Date of SFAS 157, we deferred the adoption of FAS No. 157 for
nonfinancial assets and nonfinancial liabilities for one year. The effect of
the adoption of FAS No. 157 was not material, resulting only in increased
disclosures.

FAS No. 157
establishes a framework for measuring fair value and expands disclosure about
fair value measurements. The statement requires that assets and liabilities
carried at fair value be classified and disclosed in categories.

| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1:
  Unadjusted quoted prices in active markets that are accessible at the
  measurement date for identical, unrestricted assets or liabilities.                                      
| |                                                                                                                                                                                             
| | Level 2:
  Quoted prices in markets that are not active or inputs which are observable,
  either directly or indirectly, for substantially the full term of the asset
  or liability.       
| |                                                                                                                                                                                             
| | Level 3:
  Prices or valuation techniques that require inputs that are both significant
  to the fair value measurement and unobservable (i.e. supported by little or
  no market activity).

17

---



We chose not
to elect the fair value accounting option as prescribed by FAS No. 159 for our
financial assets and liabilities. Our financial instruments, which consist
principally of cash, accounts receivable, accounts payable, short-term debt and
convertible debt, are carried at cost. The carrying value of our cash, accounts
receivable, accounts payable and accrued liabilities approximates fair value
due to their short maturities. The carrying value of our short-term debt from
our revolving credit facility approximates fair value due to the variable-rate
nature of the respective borrowings. There is very limited trading of the
companys convertible notes payable. The fair value of the companys
convertible notes is estimated at $28,000,000, based on the most recent data
available, which is at 70% of par value. The convertible notes are recorded on
the balance sheet at par value of $40,000,000 as of March 31, 2009.

12. We recorded
$329,000 in severance costs in the third quarter of fiscal 2009 related to
workforce reductions primarily within the Protect and Direct segment. We
recorded $843,000 in severance costs in the second quarter of fiscal 2009
related to the retirement of our former chief executive officer and a senior
executive within the Protect and Direct segment.

13. During the
fourth quarter of fiscal 2008, we performed the annual impairment review of our
goodwill and intangible assets and concluded that no impairment had occurred.
Subsequent to December 31, 2008, our common stock price declined such that the
market value of our common equity became lower than our book value and the
stock price remained depressed for a sustained period during the current third
quarter. In addition, the current economic conditions which began to adversely
impact our business to a significant extent during the second quarter of fiscal
2009 continued for a sustained period into the third quarter. As a result,
management performed an interim asset impairment assessment of our goodwill and
intangible assets during the current third quarter. We performed the interim
first step of the asset impairment test for both of our segments and determined
that the carrying value of our Inform segment exceeded its fair value,
indicating that goodwill of that segment was impaired. Having determined that
the Inform segment goodwill was impaired, we then performed the second step of
the goodwill impairment test which involves calculating the implied fair value
of goodwill by allocating the fair value of the segment to all of its assets
and liabilities other than goodwill and comparing the residual amount to the
carrying value of goodwill. Based upon that test, we determined that the entire
amount of the Inform segment goodwill was impaired and we recorded a goodwill
impairment charge in the Inform segment of $9,246,000, or $6,877,000 net of
income tax benefits, in the third quarter of fiscal 2009.

18

---



PART I  FINANCIAL INFORMATION

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL 
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We develop,
manufacture and market highway and transportation safety products to protect,
direct and inform motorists, pedestrians 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.

Due to the
continuing difficult economic conditions and its negative impact on
infrastructure spending as well as the events that continue to adversely affect
the credit markets, management has placed increased emphasis on reducing costs
and monitoring the risks associated with the current environment, particularly
the collectibility of accounts receivable and our liquidity. If the economic
environment continues to deteriorate, we could experience difficulties due to
the financial viability of certain of our customers and suppliers. Increased
costs and imposition of more stringent terms and conditions by our suppliers as
well as delays in payment and higher default rates by our customers could
affect our financial performance. In addition, the volatility of our stock
price and declines in our market capitalization could put pressure on the
carrying value of goodwill in our Protect and Direct segment and other
long-lived assets if these conditions persist for an extended time. See
Significant Accounting Policies and Critical Estimates for further information.
The holders of our $40,000,000 of convertible notes may require us to
repurchase the notes in cash at a price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest, if any, as early as February 15,
2010. If that occurs, there can be no assurance that we will be able to
refinance this debt on a timely basis and on satisfactory terms, if at all.
Management will continue to monitor the risks associated with the current
economic environment and their impact on our results. See FINANCIAL CONDITION
for further information.

19

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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 reflect 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 sheets until the sale. In the first quarter of
fiscal 2009, we recorded a loss on the sale of this business of $712,000, net
of income taxes. The sale of this business allowed us to reduce the amount
outstanding against our revolving credit facility.

RESULTS OF OPERATIONS

Overall, we
saw decreased sales and profitability for the first nine months and the third
quarter of fiscal 2009 compared with the same periods last year, primarily due
to the effects of the current economic downturn on infrastructure spending. Our
results for the quarter reflect improvement in our business over the second
quarter of fiscal 2009. For the current third quarter, sales decreased 3%
compared to the third quarter of last year due to decreased domestic sales in
the Protect and Direct segment, which were partially offset by increased
international sales in both segments as well as increased domestic sales in the
Inform segment. International sales for the third quarter of fiscal 2009
increased 41% compared to the third quarter last year due to increased sales
across most regions. Domestic sales decreased 14% compared to the third quarter
of last year. Sales in our Protect and Direct segment decreased 9% while sales
in our Inform segment increased 15% compared to the third quarter of last year.
The decreased sales volume in the quarter resulted in an operating loss for the
Protect and Direct segment for the quarter. Excluding a $9,246,000 non-cash
asset impairment charge recorded within the Inform segment, the segment
recorded operating profit for the current quarter. See FUTURE OUTLOOK for
further information.

20

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

|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|------------------------------------------------------------ |  | -------------------------------- | ----------- | ------------------------------- | - | ---------- | - | ---- | ----------- | ----- | - | ---------- | -
|                                                             |  | Three
  Months Ended
  March 31, |             | Nine
  Months Ended
  March 31, |  
|                                                             |  |                                  |             |                                 |  
|                                                             |  | 2009                             |             | 2008                            |   | 2009       |   | 2008 |            
|                                                             |  |                                  |             |                                 |   |            |   |      |            
|Revenues by Segment:                                         |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Protect and Direct                                           |  | $                                | 16,241,000  |                                 | $ | 17,753,000 |   | $    | 51,244,000  |       | $ | 56,815,000 |  
|Inform                                                       |  |                                  | 5,864,000   |                                 |   | 5,116,000  |   |      | 16,057,000  |       |   | 16,437,000 |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  | $                                | 22,105,000  |                                 | $ | 22,869,000 |   | $    | 67,301,000  |       | $ | 73,252,000 |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Geographic Revenues:                                         |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Domestic                                                     |  | $                                | 15,997,000  |                                 | $ | 18,543,000 |   | $    | 47,787,000  |       | $ | 56,922,000 |  
|International                                                |  |                                  | 6,108,000   |                                 |   | 4,326,000  |   |      | 19,514,000  |       |   | 16,330,000 |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  | $                                | 22,105,000  |                                 | $ | 22,869,000 |   | $    | 67,301,000  |       | $ | 73,252,000 |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Operating Income (Loss) by Segment:                          |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Protect and Direct                                           |  | $                                | (509,000    | )                               | $ | 1,383,000  |   | $    | 1,388,000   |       | $ | 8,383,000  |  
|Inform                                                       |  |                                  | (9,067,000  | ) (1)                           |   | 12,000     |   |      | (8,992,000  | ) (1) |   | 1,336,000  |  
|Unallocated Corporate                                        |  |                                  | (1,580,000  | )                               |   | (1,718,000 | ) |      | (5,629,000  | )     |   | (5,332,000 | )
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  | $                                | (11,156,000 | )                               | $ | (323,000   | ) | $    | (13,233,000 | )     | $ | 4,387,000  |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Gross profit percentage                                      |  |                                  | 25.6        | %                               |   | 31.3       | % |      | 28.2        | %     |   | 34.9       | %
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Selling and administrative expenses as a percentage of
sales |  |                                  | 29.7        | %                               |   | 28.8       | % |      | 28.9        | %     |   | 25.3       | %
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  
|Diluted earnings (loss) from continuing operations per
share |  | $                                | (0.93       | )                               | $ | (0.07      | ) | $    | (1.19       | )     | $ | 0.10       |  
|                                                             |  |                                  |             |                                 |   |            |   |      |             |       |   |            |  

(1) Includes a $9,246,000
non-cash asset impairment charge.

Revenues

Our net sales
for the third quarter of fiscal 2009 decreased $764,000, or 3%, to $22,105,000
from $22,869,000 for the third quarter last year, with decreases in Protect and
Direct segment domestic sales partially offset by increased international sales
in both segments and increased domestic sales in the Inform segment. The
decrease in domestic sales for the Protect and Direct segment in the quarter
was due to continuing softness in the domestic market for our Protect and
Direct products.

Our net sales
for the first nine
months of fiscal 2009 decreased $5,951,000, or 8%, to $67,301,000 from
$73,252,000 for the same period last year with sales decreases in both the
Protect and Direct segment and the Inform segment. Increased international
sales in both segments were partially offset by decreased domestic sales
primarily due to the effects of the current economic downturn on infrastructure
spending.

21

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Geographic - International sales for the third
quarter of fiscal 2009 increased $1,782,000, or 41%, to $6,108,000, compared to
$4,326,000 for the third quarter last year, with increased sales in most
regions and particularly in Canada, Europe and Latin America. International
sales for the Protect and Direct segment increased 42% primarily due to
increased sales of ABC Terminal products in Europe and Latin America and to
increased truck mounted attenuator and crash cushion product sales in Canada.
International sales for the Inform segment increased 39%, primarily due to
large sales of traffic sensors in Argentina and Thailand. Domestic sales for
the third quarter of fiscal 2009 decreased 14% to $15,997,000 from $18,543,000
due to decreased sales in the Protect and Direct segment caused by the effects
of the domestic economic downturn and state and municipal budgetary
constraints.

International
sales for the first nine months of fiscal 2009 increased $3,184,000, or 19%, to
$19,514,000, compared to $16,330,000 for the same period last year, with
increased sales in both segments. International sales for the Protect and
Direct segment increased 20% over the first nine months of last year due to
increased sales Canada, Europe, Latin America and the Mideast/Africa region.
Protect and Direct sales in Asia decreased over the prior year period primarily
because approximately $1,000,000 in sales in China during the second quarter
last year were not repeated in fiscal 2009. International sales for the Inform
segment increased 15% primarily due to increased sales in Latin America and the
Asia Pacific region in the first nine months of fiscal 2009. Domestic sales for
the first nine months of fiscal 2009 decreased 16% to $47,787,000 from
$56,922,000 due to decreased sales in both segments

Protect and Direct  Net sales for the Protect
and Direct segment for the third quarter of fiscal 2009 decreased 9% to
$16,241,000 from $17,753,000 for the third quarter last year with decreases in
domestic sales offsetting increased international sales. Decreased sales of
permanent crash cushions, parts, Triton® water-filled barriers and delineators
were partially offset by increased sales of truck mounted attenuators, barrels
and ABC terminals. We continue to see strong demand for ABC terminals in the
international markets and particularly in Europe.

Net sales for
the Protect and Direct segment for the first nine months of fiscal 2009
decreased 10% to $51,244,000 from $56,815,000 for the same period last year.
Increased international sales were offset by decreased domestic sales in the
period. The decrease in sales for the first nine months of this year was across
most major product lines, particularly truck mounted attenuators and permanent
crash cushions, which were offset somewhat by increased sales of ABC terminals
and barrels.

Inform  Net sales for the Inform segment for
the third quarter of fiscal 2009 increased 15%, or $748,000, to $5,864,000 from
$5,116,000 for the third quarter last year. The increase in sales in the
current third quarter compared to the third quarter of fiscal 2008 was due to
increases across most major product lines.

Net sales for
the Inform segment for the first nine months of fiscal 2009 decreased 2%, or
$380,000, to $16,057,000 from $16,437,000 for the same period last year.
Increased international sales in the current nine-month period were offset by
decreased domestic sales. Increased sales of traffic and weather sensors in the
first nine months of this year were more than offset by decreased sales of highway
advisory radio products.

Gross Profit Margin

Our gross
profit margin for the third quarter of fiscal 2009 was 25.6% compared to 31.3%
for the third quarter last year. The gross margin for the Protect and Direct
segment declined due to manufacturing inefficiencies related to the lower sales
volume and due to unfavorable product sales mix with higher sales of ABC
terminals, which have lower gross margins than some other product lines. The
gross margin for the Inform segment improved slightly due to volume
efficiencies.

22

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Our gross
profit margin for the first nine months of fiscal 2009 was 28.2% compared to
34.9% primarily due to manufacturing inefficiencies related to the lower sales
volume and the fixed nature of many of our expenses and in part due to
unfavorable product sales mix with increased sales of ABC Terminals and other
third-party manufactured items which have lower gross margins.

Selling and Administrative Expenses

Selling and
administrative expenses for the third quarter of fiscal 2009 decreased $33,000,
or 1%, to $6,564,000 from $6,597,000 for the third quarter last year. Decreased
selling and administrative expenses related to headcount reductions and other
cost-savings initiatives were largely offset by increased bad debt expense and legal
costs. Selling and administrative expenses increased as a percentage of sales
to 29.7% for the third quarter of 2009 from 28.8%.

Selling and
administrative expenses for the first nine months of fiscal 2009 increased
$856,000, or 5%, to $19,419,000 from $18,563,000 for the same period last year.
Selling and administrative expenses in the Protect and Direct and the Inform
segments increased due to higher bad debt expenses in both segments and to
increased legal and marketing promotion costs in the Protect and Direct
segment. Selling and administrative expenses increased as a percentage of sales
to 28.9% for the first nine months of 2009 from 25.3% last year.

Research and Development

Research and
development expenditures for the third quarter of fiscal 2009 decreased
$201,000, or 23%, to $674,000 from $875,000 for the same period last year due
to decreases in both segments, primarily caused by headcount reductions.

Research and
development expenditures for the nine months of fiscal 2009 decreased $209,000,
or 8%, to $2,394,000 from $2,603,000 for the same period last year due to
decreases in both segments, primarily caused by headcount reductions.

Severance Costs

We recorded
$329,000 in severance costs in the third quarter of fiscal 2009 related to headcount
reductions in both segments. Of this amount, the Protect and Direct segment
recorded $262,000 and the Inform segment recorded $67,000.

We recorded
$1,172,000 in severance costs in the first nine months of fiscal 2009 related
to the retirement of our former chief executive officer and a senior executive
within the Protect and Direct segment as well as to headcount reductions in
both segments. Of this amount, the Protect and Direct segment recorded
$323,000, the Inform segment recorded $67,000 and $782,000 was recorded as
unallocated corporate expenses.

Asset Impairment Charge

We performed
an interim asset impairment assessment as our common stock price remained
depressed during the current third quarter, causing our market capitalization
to remain below our carrying value for a sustained period and also due to the
extent and duration the current economic conditions have affected our operating
results. We recorded a non-cash asset impairment charge of $9,246,000 or
$6,877,000 net of income taxes, in the third quarter representing the remaining
portion of the goodwill recorded for the Inform segment.

23

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Operating Profit (Loss)

The operating
loss for the third quarter of fiscal 2009 was $11,156,000, compared to an
operating loss of $323,000 for the third quarter of fiscal 2008. For the third
quarter of fiscal 2009, the operating loss for the Protect and Direct Group was
$509,000, compared to operating profit of $1,383,000 in the same period last
year, primarily due to the lower sales volume and unfavorable product sales
mix. The operating loss for the Inform segment was $9,067,000 including a $9,246,000 non-cash asset impairment charge compared to
operating profit of $12,000 for the third quarter of last year. The operating loss for the third quarter
of fiscal 2009 also included severance costs of $329,000.

The operating
loss for the first nine months of fiscal 2009 was $13,233,000, compared to
operating profit of $4,387,000 for the first nine months of fiscal 2008. For the first
nine months of fiscal 2009, operating profit for the Protect and Direct Group
was $1,388,000, compared to operating profit of $8,383,000 in the same period
last year, primarily due to the lower sales volume and unfavorable product
sales mix. The operating loss for the Inform segment was $8,992,000 including a $9,246,000 non-cash asset impairment charge compared
to operating profit of $1,336,000 for the first nine months of last year. The operating loss
for the first nine months of fiscal 2009 also included severance costs of
$1,172,000.

Interest Expense

Interest
expense for the third quarter of fiscal 2009 decreased $220,000, or 21% to
$848,000 from $1,068,000 for the third quarter last year, primarily due to the
lower level of revolving debt outstanding and also to the lower interest rates
on our revolving debt. The interest rate on our bank facility is based on LIBOR
or the British Bankers Association LIBOR, plus a margin. Our overall weighted
average interest rate was 6.8% as of March 31, 2009, primarily due to the 7% interest
rate on our $40,000,000 in convertible debt.

Interest
expense for the first nine months of fiscal 2009 decreased to $2,630,000 from
$3,306,000 for the same period last year. The decrease was primarily due to the
lower level of revolving debt outstanding and to the lower interest rates on
our revolving debt.

Interest Income

Interest
income for the third quarter of fiscal 2008 was $336,000, which included
interest earned on a $2.6 million federal income tax refund received during the
third quarter of last year.

Income Tax Provision (Benefit)

The income tax
benefit for the third quarter of fiscal 2009 was $3,414,000 representing a 28%
effective income tax rate. An income tax benefit of $2,369,000 was recorded on
the asset impairment charge of $9,246,000. The income tax benefit for the third
quarter of fiscal 2008 was $400,000, representing a 38% effective income tax
rate.

The income tax
benefit for the first nine months of fiscal 2009 was $4,880,000, representing a
31% effective income tax rate. This compares to a provision of $539,000 for the
same period last year, representing a 38% effective income tax rate.

Earnings (Loss) from Continuing Operations

The loss from
continuing operations for the third quarter of fiscal 2009 was $8,583,000, or
$0.93 per diluted share, compared to earnings from continuing operations of
$655,000, or $0.07 per diluted share, for the third quarter last year. The
current quarter loss includes the asset impairment charge of $6,877,000, net of
income tax benefit, or $0.74 per diluted share. The current quarter loss also
includes severance costs of $204,000, net of income tax benefit, or $0.02 per
diluted share. Last years third quarter earnings included interest income
 on a tax refund
 of
$208,000, net of income tax provision, or $0.02 per diluted share.

The loss from
continuing operations for the first nine months of fiscal 2009 was $10,976,000,
or $1.19 per diluted share, compared to earnings from continuing operations of
$880,000, or $0.10 per diluted share, for the first nine months last year. The
current nine-month loss includes the asset impairment charge of $6,877,000, net
of income tax benefit, or $0.74 per diluted share. The current nine-month loss
also includes severance costs of $727,000, net of income tax benefit, or $0.08
per diluted share. Last years nine-month earnings included interest income on a tax refund of
$208,000, net of income tax provision, or $0.02 per diluted share.

24

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Loss from Discontinued Operations, Net of Income Taxes

The loss from
discontinued operations, net of income taxes, for the third quarter of fiscal
2008 was $509,000, or $0.06 per diluted share.

The loss from
discontinued operations, net of income taxes, for the first nine months of
fiscal 2009 was $758,000, or $0.08 per diluted share, compared to a net loss of
$815,000, or $0.09 per diluted share, for the same period last year.

Net Earnings (Loss)

The net loss
for the third quarter of fiscal 2009 was $8,583,000, or $0.93 per diluted
share, compared to a net loss of $1,164,000, or $0.13 per diluted share, for
the third quarter last year.

The net loss
for the first nine months of fiscal 2009 was $11,734,000, or $1.27 per diluted
share, compared to net earnings of $65,000, or $0.01 per diluted share, for the
same period last year.

25

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FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal
sources of cash historically have been cash flows from operations and
borrowings from banks and other sources. We had cash and cash equivalents of
$128,000 as of March 31, 2009. As of March 31, 2009, we had $2,850,000
outstanding against our bank credit facility and $40,000,000 in 7% Convertible
Senior Subordinated Notes due February 2025 (the Convertible Notes).

Our current
secured bank credit agreement with our senior bank (the Credit Agreement)
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. 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 effectively 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 believe this amendment reduces the possibility
that we may violate financial covenants through the term of the Credit
Agreement.

The holders of
our $40,000,000 of Convertible Notes may require us to repurchase the notes in
cash at a price equal to 100% of the principal amount of the Notes plus accrued
and unpaid interest, if any, as early as February 15, 2010. In connection with
the potential put of the Notes to the Company, during the quarter we hired 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. However, even with these
actions, given the continued weakness in the economy and in the credit markets,
there can be no assurance that we can obtain the necessary capital on
satisfactory terms to pay the Convertible Note holders, should they require
payment in February 2010.

Our ability to
remain in compliance with the covenants of the Credit Agreement, as amended,
and to modify our capital structure 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 comply with our bank covenants and to obtain an
extension of our 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. 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.

26

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Our
outstanding borrowings were $42,850,000, or 56.3% of total capitalization, as
of March 31, 2009, of which $2,850,000 was outstanding against our bank credit
facility. This compares to outstanding borrowings of $57,600,000, or 56.8% of
total capitalization, as of June 30, 2008, of which $17,600,000 was outstanding
against our bank credit facility. We used $20 million in proceeds from the sale
of the Intersection Control segment in the first quarter to pay down
substantially all of our revolving bank debt. Based upon the recent amendment
to the Credit Agreement, we have approximately $11 million in additional
availability under the bank credit facility. Included in long-term debt as of
June 30, 2008 was the $40 million of Convertible Notes. The convertible debt is
classified as current debt at the end of the current third quarter as the
effective maturity date of the Notes is February 15, 2010. The amount of
standby letters of credit outstanding was $1,120,000 as of March 31, 2009 and
$1,012,000 as of June 30, 2008.

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 $2,850,000
as of March 31, 2009. Currently, we do not believe that our operating cash flow
needs will require us to significantly increase our bank borrowings in the near
term. Our $40 million of 7 % Convertible Notes accounted for the majority of
our $42.9 million in outstanding debt as of March 31, 2009. However, given the
potential put of the Notes to the Company along with the continued weakness in
the economy and in the credit markets, there can be no assurance that we can
obtain the necessary capital on satisfactory terms to pay the Convertible Note
holders, should they require payment in February 2010.

Cash Flows

Cash flows
used in continuing operations were $614,000 during the first nine months of
fiscal 2009 compared with $5,919,000 provided by continuing operations in the
first nine months of fiscal 2008. For the first nine months of fiscal 2009, the
loss from continuing operations was $10,976,000, net of income taxes.
Offsetting this loss from continuing operations were non-cash expenses of
$8,212,000 including a $9,246,000 non-cash asset impairment charge and
depreciation and amortization expenses of $2,816,000. Decreased working capital
provided $2,150,000 in cash, primarily representing decreased accounts
receivable due to the lower level of our sales. Although we are focused on
reducing working capital to provide cash, such as inventory levels, further
losses from continuing operations would negatively impact cash flow provided by
operations.

Cash used in
discontinued operations was $1,545,000 during the first nine months of fiscal
2009 and $5,661,000 in the first nine months of fiscal 2008 primarily
representing increased working capital including increased inventory and
decreased accounts payable.

Investing
activities of continuing operations provided cash of $18,483,000 during the
first nine months of fiscal 2009, compared to $3,030,000 used in the first nine
months of the prior year. Proceeds from the sale of the Intersection Control
segment provided cash of $20 million in the first quarter of fiscal 2009.
Expenditures during the first nine months of fiscal 2009 included $1,446,000
for capital expenditures compared with $2,965,000 for the first nine months
last year as we manage our capital spending in this difficult environment.

Financing
activities used cash of $16,579,000 during the first nine months of fiscal
2009, compared with $4,427,000 of cash provided during the first nine months of
fiscal 2008. The $20 million in proceeds from the sale of the Intersection
Control segment was used to pay down substantially all of our bank debt in the
first quarter of this year. Also during the first nine months of fiscal 2009,
we borrowed a net $5,250,000, excluding the $20 million, against our
outstanding revolving credit facility. The payment of our semi-annual cash
dividend used cash of $1,829,000 in the first quarter of fiscal 2009. Our
decision to suspend payment of the semi-annual dividend will save nearly $4
million in annual cash expenditures.

27

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For the entire
fiscal year 2009, we anticipate needing approximately $2,000,000 in cash for
capital expenditures compared to $3,371,000 for fiscal 2008 as we manage our
capital spending in this difficult environment. As discussed above, we have
undertaken a comprehensive examination of financial and strategic alternatives
to generate capital from a variety of sources, including, but not limited to,
the sale of assets and the restructuring of our current Convertible Notes and
Credit Agreement. We currently believe that future cash needs will be financed either
through cash on-hand, cash generated from operations, from borrowings available
under our bank credit facility or from proceeds resulting from the sale of
assets. We currently believe that these sources of cash should be sufficient
for all planned operating and capital requirements in the near term. However,
continued negative performance would negatively impact cash from operations and
our cash flow accordingly. Management will continue to closely monitor our
liquidity and the credit markets. However, management cannot predict the impact
to our Company caused by any further disruption in the credit environment.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We are subject
to certain debt obligations, guarantees, commitments and contingent liabilities
further described in our Annual Report on Form 10-K for the year ended June 30,
2008. The following table presents our contractual obligations to make future
payments under contracts, such as debt and lease agreements, as of March 31,
2009:

|                                  |  |       |            |          |             |             |  |             |           |           |   |         |             |  |  | 
|--------------------------------- |  | ----- | ---------- | -------- | ----------- | ----------- |  | ----------- | --------- | --------- | - | ------- | ----------- |  |  | 
|                                  |  |       |            |          | Less
  than |             |  |             |           |           |   |         | More
  than | 
|                                  |  | Total |            | 1
  Year |             | 1-3
  Years |  | 3-5
  Years |           | 5
  Years |  
|                                  |  |       |            |          |             |             |  |             |           |           |  
|                                  |  |       |            |          |             |             |  |             |           |           |   |         |             |  |  | 
|Long-term debt (1)                |  | $     | 42,850,000 |          | $           | 42,850,000  |  |             |           |           |   |         |             |  |  | 
|Estimated interest
  payments (2) |  |       | 2,500,000  |          |             | 2,500,000   |  |             |           |           |   |         |             |  |  | 
|Operating leases                  |  |       | 2,963,000  |          |             | 2,448,000   |  |             | 302,000   |           |   | 213,000 |             |  |  | 
|Minimum royalty payments          |  |       | 1,110,000  |          |             | 510,000     |  |             | 600,000   |           |   |         |             |  |  | 
|Uncertain tax benefits            |  |       | 227,000    |          |             | 109,000     |  |             | 118,000   |           |   |         |             |  |  | 
|Purchase obligations              |  |       | 1,211,000  |          |             | 1,211,000   |  |             |           |           |   |         |             |  |  | 
|                                  |  |       |            |          |             |             |  |             |           |           |   |         |             |  |  | 
|Total                             |  | $     | 50,861,000 |          | $           | 49,628,000  |  | $           | 1,020,000 |           | $ | 213,000 |             |  |  | 
|                                  |  |       |            |          |             |             |  |             |           |           |   |         |             |  |  | 

|    |                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount includes expected
  cash payments on long-term debt based upon current and effective maturities
  as well as expected renewals.                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                        
|(2) | Amount includes estimated
  interest payments based on interest rates as of the current period. Interest
  rates on variable-rate debt are subject to change in the future. Interest is
  estimated based upon current and effective maturities as well as expected
  renewals of long-term debt currently outstanding.

As disclosed
in the footnotes to the consolidated financial statements, we have entered into
bid and performance related bonds associated with various contracts. Potential
payments due under these bonds are related to our performance under certain
contracts. The total amount of bid and performance related bonds that were
available and undrawn as of March 31, 2009 was $3,111,000. We also have standby
letters of credit covering potential workers compensation liabilities and
other liabilities. The total standby exposure relating to letters of credit as
of March 31, 2009 was $1,120,000.

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FUTURE OUTLOOK

Looking
forward, we remain cautious given the weak global economic conditions and the
difficult financial markets. This unfavorable market environment may continue
to negatively affect demand for our products indefinitely. However,
domestically we are optimistic about the potential positive impact from the
federal funding for transportation projects enacted as part of the American
Recovery and Reinvestment Act, signed into law in February 2009, which includes
approximately $27 billion in stimulus funding for highways and bridges. We were
encouraged to see a sharp rebound in order and sales levels in March after the
first two months of the third quarter were adversely affected by a weak market
environment and delays in domestic customer spending as they waited for
enactment of the economic stimulus package. Although we remain cautious, we
have guarded optimism that prospects for domestic sales of our products may
improve in the near term. However, there is no guarantee that the recent
stimulus funding will have a prolonged favorable impact on our business or that
domestic sales will increase significantly.

We expect
international sales to continue to be an important driver of our sales growth
and we plan to continue to focus on these markets to offset the softness in the
domestic market. International sales during the third quarter increased 41% and
we are currently cautiously optimistic that international sales in fiscal 2009
may modestly outpace last years international sales of $24.6 million. We
expect that international sales will be an increasing part of our business and
may partially offset the softness in domestic sales this fiscal year. However,
there can be no assurance that international sales will increase.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (U.S. GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. Managements estimates
also affect the reported amounts of revenues and expenses during the reporting
period. In addition, certain normal and recurring estimates are made, including
estimates in determining the allowance for doubtful accounts receivable,
inventory valuation reserves, valuation allowance on deferred tax assets and
health care liabilities. These estimates are made using managements best
judgment given relevant factors and available data. Actual results could differ
materially from those estimates. Note 2 to our June 30, 2008 consolidated
financial statements includes a summary of the significant accounting policies,
methods and estimates used in the preparation of our consolidated financial
statements. There have been no material changes in accounting policies, methods
and estimates used by management during this fiscal year except for the
adoption of accounting pronouncements as described in Note 1 in the Notes to
Consolidated Financial Statements. In most instances, we must use an accounting
policy or method because it is the only policy or method permitted under U.S.
GAAP. We are providing updated information for the following significant
accounting policies:

LONG-LIVED
ASSETS: Long-lived assets include such items as goodwill, patents, product
rights, other intangible assets and property, plant and equipment. For purposes
of evaluating the recoverability of long-lived assets, we assess the
possibility of obsolescence, demand, new technology, competition, and other
pertinent economic factors and trends that may have an impact on the value or
remaining lives of these assets. In performing our impairment assessments, we
first assess our indefinite-lived intangibles; second, assess our amortized
long-lived assets (including amortized intangible assets and property, plant
and equipment); and third, assess our goodwill. Additionally, we reassess the
remaining useful lives of our amortized long-lived assets.

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Amortized
long-lived assets (including amortized intangible assets and property, plant
and equipment) held and used by us are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable in relation to future undiscounted cash flows of underlying
asset groups. The net carrying value of assets not recoverable is reduced to
fair value. Fair values of amortized long-lived assets are determined based
upon the performance of a fair value appraisal. Patents and other finite-lived
intangible assets are amortized on a straight-line or systematic method over
the life of the patent or intangible asset.

Goodwill and
other indefinite-lived intangible assets are tested for impairment annually or
when a triggering event occurs. The indefinite-lived intangible asset impairment
test is performed by comparing the fair value of the intangible asset to its
carrying value in a one-step analysis. If the fair value of the intangible
asset is less than its carrying value, the intangible asset is written down to
its fair value. The goodwill impairment test is performed at the reporting unit
level and is a two-step analysis. First, the fair value of the reporting unit
is compared to its book value. If the fair value of the reporting unit is less
than its book value, we perform a hypothetical purchase price allocation based
on the reporting units fair value to determine the implied fair value of the
reporting units goodwill. If the implied fair value of the goodwill is less
than its carrying value, the goodwill is written down to its implied fair
value. Fair values are determined using discounted cash flow methodologies.

The impairment
review is highly judgmental and involves the use of significant estimates and
assumptions. These estimates and assumptions have a significant impact on the
amount of any impairment charge recorded. Estimates of fair value are primarily
determined using discounted cash flow methods and are dependent upon
assumptions of future sales trends, market conditions and cash flows of each
reporting unit over several years. Actual cash flows in the future may differ
significantly from those previously forecasted. Other significant assumptions
include growth rates and the discount rate applicable to future cash flows. Our
stock price is also a factor impacting the assessment of the fair value of our
underlying reporting segment for purposes of performing a goodwill impairment
assessment. Our stock price can be affected by, among other things, the
relatively small public float of our stock, quarterly fluctuations in our
operating results, and changes in estimates of our future earnings.

During the
fourth quarter of fiscal 2008, we performed the annual impairment review of our
goodwill and intangible assets and concluded that no impairment had occurred.
Subsequent to December 31, 2008, our common stock price declined such that the
market value of our common equity became lower than our book value and the
stock price remained depressed for a sustained period during the current third
quarter. In addition, the current economic conditions which began to adversely
impact our business to a significant extent during the second quarter of fiscal
2009 continued for a sustained period into the third quarter. As a result,
management performed an interim asset impairment assessment of our goodwill and
intangible assets during the current third quarter. We performed the interim
first step of the asset impairment test for both of our segments and determined
that the carrying value of our Inform segment exceeded its fair value, indicating
that goodwill of that segment was impaired. Having determined that the Inform
segment goodwill was impaired, we then performed the second step of the
goodwill impairment test which involves calculating the implied fair value of
goodwill by allocating the fair value of the segment to all of its assets and
liabilities other than goodwill and comparing the residual amount to the
carrying value of goodwill. Based upon that test, we determined that the entire
amount of the Inform segment goodwill was impaired and we recorded a goodwill
impairment charge in the Inform segment of $9,246,000, or $6,877,000 net of
income tax benefits, in the third quarter of fiscal 2009.

Our current
interim impairment review did not indicate that the assets of the Protect and Direct
segment were impaired. However, if the Protect and Direct segment records
significantly lower than expected operating profits during the fourth quarter
of fiscal 2009 or in interim periods during fiscal 2010, or if we experience
changes in expectations related to the extent and duration of the economic
downturn and its impact on the operating results of the Protect and Direct
segment, or if our market capitalization falls below our carrying value for a
sustained period, we may need to perform another goodwill impairment test. The
amount of an impairment loss could be up to the total amounts of goodwill and
intangible assets recorded as of March 31, 2009 of $8,139,000 and $941,000,
respectively, for the Protect and Direct segment. If we are required to take a
substantial impairment charge, then our operating results would be materially
adversely affected in such period.

30

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INCOME TAXES

We recognize
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. In assessing the realizability of the
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. To the
extent that any future tax benefits are not expected to be fully realized, such
future tax benefits are reduced by a valuation allowance. Realization of
deferred tax assets assumes that we will be able to generate sufficient future
taxable income so that the assets will be realized. The factors that we
consider in assessing the likelihood of realization include the forecast of
future taxable income, available tax planning strategies that could be
implemented to realize the deferred tax assets as well as certain federal and
state laws that impose restrictions on the utilization of net operating loss
and tax credit carryforwards. We currently expect the net deferred tax assets
of $21,207,000 recorded as of March 31, 2009 to be fully realizable in part
based upon expected future projected income and the length of time to utilize
net operating losses. However, changes in expectations related
to the extent and duration of the economic downturn and its impact on our
operating results could cause us to further review the realizability of our
deferred tax assets. It is possible that the review would result in an
increased valuation allowance, increasing income tax expense, which would
adversely affect our net income.

DERIVATIVES

We may use derivative
financial instruments from time to time as a risk management tool to hedge our
exposure to changes in interest rates and foreign exchange rates. Our
derivatives are designated as cash flow hedges. We record any changes in the
fair value of the derivative in accumulated other comprehensive income in
stockholders equity. We then reclassify these amounts into earnings as the
underlying hedged item affects earnings. We do not use derivative financial
instruments for speculative purposes or for trading purposes. We may use
interest rate swaps to manage interest rate risk associated with fixed and
floating-rate borrowings, but we have not used those instruments since issuing
our fixed rate convertible debt in fiscal 2005. We may also enter into currency
exchange contracts to manage currency risk resulting from exchange rate
changes. We do not have any material derivative financial instruments as of
March 31, 2009.

RECENTLY
ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSSee Note 1 in the Notes
to Consolidated Financial Statements.

FORWARD
LOOKING STATEMENTS

Various
statements made within the Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this report constitute
forward-looking statements for purposes of the SECs safe harbor provisions
under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under
the Securities Exchange Act of 1934, as amended. Except for historical
information, any statement that addresses expectations or projections about the
future, including statements about our strategy for growth, product
development, market position, expenditures, financial results or changes in
governmental legislation, policies and conditions, is a forward-looking
statement.

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Readers are
cautioned not to place undue reliance on these forward-looking statements and
that all forward-looking statements involve risks and uncertainties, including
those detailed in our public filings with the SEC, news releases and other
communications, which speak only as of the dates of those filings or
communications. We do not undertake any obligation to release publicly any
revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. There can be no assurance that actual results will not
differ materially from our expectations. Factors which could cause materially
different results include uncertainties related to continued weakening of the
global economic conditions and the constricted financial markets; continued
federal, state and municipal funding for highways and risks related to
reductions in government expenditures; market demand for our products; pricing
and competitive factors, among others which are set forth in the Risk Factors
of Part I, Item 1A, to our Annual Report on Form 10-K for the year ended June
30, 2008, as amended at Item 1A of Part II of the Quarterly Report on Form 10-Q
filed on February 9, 2009.

ITEM 3. Quantitative and Qualitative
Disclosures about Market Risk

Part I, Item
7.A. of our Annual Report on Form 10-K for the year ended June 30, 2008
presents information regarding Quantitative and Qualitative Disclosures about
Market Risk.

We are exposed
to market risk from fluctuations in interest rates on our revolving credit
facility, and, to a limited extent, currency exchange rates. The majority of
our debt is at a fixed interest rate. Given that our exposure to interest rate
fluctuations is low, we currently believe that the use of derivative
instruments in the form of non-trading interest rate swaps to manage the risk
is not necessary.

Assets,
liabilities and commitments that are to be settled in cash and are denominated
in foreign currencies for transaction purposes are sensitive to changes in
currency exchange rates. The majority of our business is transacted in U.S.
dollars and the U.S. dollar is considered the primary currency for the majority
of our operations. There were no material transaction gains or losses during
the first nine months of fiscal 2009 or in fiscal year 2008 and we do not
believe we are currently exposed to any material risk of loss from currency
exchange fluctuations. We will continue to evaluate the need for the use of
derivative financial instruments to manage foreign currency exchange rate
changes. In the next few years we may confront greater risks from currency
exchange fluctuations as our business expands internationally.

32

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ITEM 4. Controls and Procedures

(a) Evaluation
of Disclosure Controls and Procedures

We maintain
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Companys reports under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms, and that such
information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. The design of any system of
disclosure controls and procedures is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
disclosure controls and procedures will succeed in achieving their stated goals
under all potential future conditions.

Our
management, under the supervision of and with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the Companys disclosure controls and procedures, as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of
the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of March 31, 2009.

(b) Changes in
Internal Controls over Financial Reporting

There have
been no changes in our internal controls over financial reporting that may have
materially affected, or are likely to materially affect, our internal control
over financial reporting. Our process for evaluating controls and procedures is
continuous and encompasses review of the design and effectiveness of
established controls and procedures and the remediation of any deficiencies
which may be identified during this process.

33

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PART II  OTHER INFORMATION

There is no
information required to be reported under any items except as indicated below:

Item 1. Legal Proceedings

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are
  involved in several pending judicial proceedings for product liability and
  other damages arising out of the conduct of our business. While the outcome
  of litigation is subject to uncertainties, we believe, after consultation
  with counsel, that the outcome of these proceedings, based on current
  available information and after taking into account the availability and
  limits of our insurance coverage, will not have a material effect on our
  consolidated financial condition and results of operations.

Item 6. Exhibits

(a)      Exhibits

|     |                                                                                                                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  | Certificate of Elimination of Series B Junior Participating Preferred Stock                                                                                                                                           
|     |                                                                                                                                                                                                                       
|10.6 | Waiver,
Sixth Amendment to Amended and Restated Credit Agreement and Reaffirmation of
Guaranties dated as of May 7, 2009 by and between Quixote Corporation and
certain Subsidiaries thereof and Bank of America, N.A.
|     |                                                                                                                                                                                                                       
|31   | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                               
|     |                                                                                                                                                                                                                       
|32   | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                               

34

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SIGNATURE

Pursuant to
the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Quarterly Report on Form 10-Q for the quarter ended March 31,
2009 to be signed on its behalf by the undersigned thereunto duly authorized.

|                      |                                         
|--------------------- | ----------------------------------------
|                      | QUIXOTE
  CORPORATION                   
|                      |                                         
|DATED: May
  11, 2009 | /s/ Daniel
  P. Gorey                   
|                      |                                         
|                      | Daniel P.
  Gorey                       
|                      | Chief
  Financial Officer,              
|                      | Executive
  Vice President and Treasurer
|                      | (Chief
  Financial & Accounting Officer)

35

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EXHIBIT INDEX

Exhibits:

|     |                                                                                                                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  | Certificate of Elimination of Series B Junior Participating Preferred Stock                                                                                                                                           
|     |                                                                                                                                                                                                                       
|10.6 | Waiver, Sixth Amendment to Amended and Restated Credit Agreement and Reaffirmation of
Guaranties dated as of May 7, 2009 by and between Quixote Corporation and
certain Subsidiaries thereof and Bank of America, N.A.
|     |                                                                                                                                                                                                                       
|31   | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                               
|     |                                                                                                                                                                                                                       
|32   | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                               

36

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