##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2009

OR



| ̈ | 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: 001-33793





ICx Technologies, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | #77-0619113                      
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|                                            |  |           
|------------------------------------------- |  | ----------
|2100 Crystal Drive, Suite 650 Arlington, VA |  | 22202     
|(Address of principal executive offices)    |  | (Zip Code)

(703) 678-2111

(Registrants telephone number, including area code)





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   ̈

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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 (Check one).:



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  | x |  | Smaller reporting company |  |  ̈

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

As of April 30, 2009, the registrant had 34,377,481 shares of Common Stock outstanding.









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##### Table of Contents

ICx TECHNOLOGIES, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE
QUARTER ENDED MARCH 31, 2009

INDEX



|                                                                                                                            |  |   
|--------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                               |  |   
|                                                                                                                            | 
|Item 1. Financial Statements                                                                                                |  |   
|                                                                                                                            | 
|Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008 (audited)                                |  | 3 
|                                                                                                                            | 
|Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2009 and 2008
(unaudited) |  | 4 
|                                                                                                                            | 
|Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2009 (unaudited)                        |  | 5 
|                                                                                                                            | 
|Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 (unaudited)                        |  | 6 
|                                                                                                                            | 
|Notes to Consolidated Financial Statements (unaudited)                                                                      |  | 7 
|                                                                                                                            | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                               |  | 16
|                                                                                                                            | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 29
|                                                                                                                            | 
|Item 4. Controls and Procedures                                                                                             |  | 29
|                                                                                                                            | 
|PART II. OTHER INFORMATION                                                                                                  |  |   
|                                                                                                                            | 
|Item 1. Legal Proceedings                                                                                                   |  | 30
|                                                                                                                            | 
|Item 1A. Risk Factors                                                                                                       |  | 30
|                                                                                                                            | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                         |  | 30
|                                                                                                                            | 
|Item 3. Defaults Upon Senior Securities                                                                                     |  | 30
|                                                                                                                            | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                                 |  | 30
|                                                                                                                            | 
|Item 5. Other Information                                                                                                   |  | 30
|                                                                                                                            | 
|Item 6. Exhibits                                                                                                            |  | 30
|                                                                                                                            | 
|Signatures                                                                                                                  |  | 31
|                                                                                                                            | 
|Index to Exhibits                                                                                                           |  | 32



2



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

ICx TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets



|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                                                                                                              |  | UnauditedMarch 31,2009 |              |   | December 31,2008 |  
|Assets                                                                                                                                                                                                                        |  |                        |              |   |                  |   |              |  
|Current assets:                                                                                                                                                                                                               |  |                        |              |   |                  |   |              |  
|Cash and cash equivalents (includes restricted cash of $8.4 million at March 31, 2009 and December 31, 2008)                                                                                                                  |  | $                      | 35,298,145   |   |                  | $ | 38,782,103   |  
|Trade accounts receivable, net                                                                                                                                                                                                |  |                        | 27,856,144   |   |                  |   | 37,101,003   |  
|Inventories                                                                                                                                                                                                                   |  |                        | 24,302,172   |   |                  |   | 26,229,632   |  
|Deferred income taxes                                                                                                                                                                                                         |  |                        | 19,935       |   |                  |   | 19,935       |  
|Prepaid expenses and other current assets                                                                                                                                                                                     |  |                        | 13,750,450   |   |                  |   | 13,637,466   |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Total current assets                                                                                                                                                                                                          |  |                        | 101,226,846  |   |                  |   | 115,770,139  |  
|Property, plant and equipment, net                                                                                                                                                                                            |  |                        | 10,745,082   |   |                  |   | 10,913,946   |  
|Intangible assets, net                                                                                                                                                                                                        |  |                        | 16,530,141   |   |                  |   | 19,053,082   |  
|Goodwill                                                                                                                                                                                                                      |  |                        | 70,778,425   |   |                  |   | 70,818,230   |  
|Other assets                                                                                                                                                                                                                  |  |                        | 3,208,264    |   |                  |   | 2,743,055    |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Total assets                                                                                                                                                                                                                  |  | $                      | 202,488,758  |   |                  | $ | 219,298,452  |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Liabilities and Stockholders Equity                                                                                                                                                                                          |  |                        |              |   |                  |   |              |  
|Current liabilities:                                                                                                                                                                                                          |  |                        |              |   |                  |   |              |  
|Lines of credit                                                                                                                                                                                                               |  | $                      | 2,381,072    |   |                  | $ |             |  
|Current portion of long-term debt                                                                                                                                                                                             |  |                        | 71,528       |   |                  |   | 58,920       |  
|Accounts payable                                                                                                                                                                                                              |  |                        | 8,376,829    |   |                  |   | 16,875,531   |  
|Accrued payroll expenses                                                                                                                                                                                                      |  |                        | 4,813,879    |   |                  |   | 5,906,904    |  
|Accrued expenses and other current liabilities                                                                                                                                                                                |  |                        | 6,961,708    |   |                  |   | 7,131,284    |  
|Deferred revenue                                                                                                                                                                                                              |  |                        | 3,167,246    |   |                  |   | 9,052,984    |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Total current liabilities                                                                                                                                                                                                     |  |                        | 25,772,262   |   |                  |   | 39,025,623   |  
|Long-term debt                                                                                                                                                                                                                |  |                        | 147,444      |   |                  |   | 175,519      |  
|Deferred income taxes                                                                                                                                                                                                         |  |                        | 890,087      |   |                  |   | 947,600      |  
|Other liabilities                                                                                                                                                                                                             |  |                        | 1,387,285    |   |                  |   | 1,342,342    |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Total liabilities                                                                                                                                                                                                             |  |                        | 28,197,078   |   |                  |   | 41,491,084   |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Commitments and Contingencies                                                                                                                                                                                                 |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Series A Convertible Redeemable Preferred Stock, par value $.001 per shareauthorized 15,000,000; issued and outstanding 0 shares;
liquidation preference $0                                                                  |  |                        |             |   |                  |   |             |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Stockholders Equity:                                                                                                                                                                                                         |  |                        |              |   |                  |   |              |  
|Common stock, par value $.001 per share, authorized 250,000,000 shares at March 31, 2009 and December 31, 2008; issued and
outstanding 34,658,370 and 34,422,765 shares at March 31, 2009 and December 31, 2008, respectively |  |                        | 34,659       |   |                  |   | 34,423       |  
|Additional paid-in capital                                                                                                                                                                                                    |  |                        | 382,791,296  |   |                  |   | 381,701,973  |  
|Treasury stock, at cost; 315,591 and 240,665 shares at March 31, 2009 and December 31, 2008, respectively                                                                                                                     |  |                        | (2,566,099   | ) |                  |   | (2,214,912   | )
|Accumulated deficit                                                                                                                                                                                                           |  |                        | (207,953,286 | ) |                  |   | (204,478,210 | )
|Accumulated other comprehensive income                                                                                                                                                                                        |  |                        | 1,985,110    |   |                  |   | 2,764,094    |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Total stockholders equity                                                                                                                                                                                                    |  |                        | 174,291,680  |   |                  |   | 177,807,368  |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                              |  |                       
|Total liabilities and stockholders equity                                                                                                                                                                                    |  | $                      | 202,488,758  |   |                  | $ | 219,298,452  |  
|                                                                                                                                                                                                                              |  |                        |              |   |                  |   |              |  

The accompanying notes are an integral part of these consolidated financial statements.



3



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ICx TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss



|                                                      |  |                                       |            |   |      |   |             |  
|----------------------------------------------------- |  | ------------------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                      |  | UnauditedThree Months Ended March 31, |           
|                                                      |  | 2009                                  |            |   | 2008 |  
|Revenues:                                             |  |                                       |            |   |      |   |             |  
|Product revenues                                      |  | $                                     | 16,615,032 |   |      | $ | 20,364,102  |  
|Contract research and development revenues            |  |                                       | 11,282,255 |   |      |   | 11,975,976  |  
|Service and other revenues                            |  |                                       | 19,886,674 |   |      |   | 3,912,998   |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Total revenues                                        |  |                                       | 47,783,961 |   |      |   | 36,253,076  |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Cost of revenues:                                     |  |                                       |            |   |      |   |             |  
|Cost of product revenues                              |  |                                       | 8,212,174  |   |      |   | 10,130,116  |  
|Cost of contract research and development revenues    |  |                                       | 8,314,119  |   |      |   | 7,683,093   |  
|Cost of service and other revenues                    |  |                                       | 14,324,106 |   |      |   | 2,557,054   |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Total cost of revenue                                 |  |                                       | 30,850,399 |   |      |   | 20,370,263  |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Gross profit                                          |  |                                       | 16,933,562 |   |      |   | 15,882,813  |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Operating expenses:                                   |  |                                       |            |   |      |   |             |  
|General and administrative                            |  |                                       | 7,283,566  |   |      |   | 9,637,743   |  
|Sales and marketing                                   |  |                                       | 6,405,248  |   |      |   | 7,831,016   |  
|Research and development                              |  |                                       | 3,596,058  |   |      |   | 6,683,837   |  
|Depreciation and amortization                         |  |                                       | 3,101,546  |   |      |   | 3,286,784   |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Total operating expenses                              |  |                                       | 20,386,418 |   |      |   | 27,439,380  |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Operating loss                                        |  |                                       | (3,452,856 | ) |      |   | (11,556,567 | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Other income (expense):                               |  |                                       |            |   |      |   |             |  
|Interest income                                       |  |                                       | 51,853     |   |      |   | 429,549     |  
|Interest expense                                      |  |                                       | (17,279    | ) |      |   | (17,704     | )
|Other, net                                            |  |                                       | 56,495     |   |      |   | (122,124    | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Total other income                                    |  |                                       | 91,069     |   |      |   | 289,721     |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Loss before income taxes                              |  |                                       | (3,361,787 | ) |      |   | (11,266,846 | )
|Income tax (benefit) expense                          |  |                                       | 113,289    |   |      |   | (32,213     | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Loss from continuing operations                       |  | $                                     | (3,475,076 | ) |      | $ | (11,234,633 | )
|Loss on sale of discontinued operations, net of tax   |  |                                       |           |   |      |   | (902,885    | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Net loss                                              |  | $                                     | (3,475,076 | ) |      | $ | (12,137,518 | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Other comprehensive income                            |  |                                       |            |   |      |   |             |  
|Foreign currency translation adjustment, net of tax   |  |                                       | (778,984   | ) |      |   | 553,490     |  
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Comprehensive loss                                    |  | $                                     | (4,254,060 | ) |      | $ | (11,584,028 | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Net loss per common share                             |  |                                       |            |   |      |   |             |  
|Basic and diluted                                     |  | $                                     | (0.10      | ) |      | $ | (0.36       | )
|                                                      |  |                                       |            |   |      |   |             |  
|                                                      |  |                                      
|Basic and diluted weighted average shares outstanding |  |                                       | 34,488,639 |   |      |   | 33,715,409  |  
|                                                      |  |                                       |            |   |      |   |             |  

The accompanying notes are an integral part of these consolidated financial statements.



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ICx TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders Equity



|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|-------------------------------------------- |  | -------------------- |  | ------------------------- | ------ | ------------------ | - | ----------- | ----------------------------------- | - | ------------ | ------------- |  | - | ------------------------ | - |  | - | ---------- | - |  | - | ----------- | -
|                                             |  | Unaudited            | 
|                                             |  | Stockholders Equity | 
|                                             |  | Common Stock         |  | AdditionalPaid-in Capital |        | AccumulatedDeficit |   |             | AccumulatedOtherComprehensiveIncome |   |              | TreasuryStock |  |   | TotalStockholdersEquity |  
|                                             |  | Shares               |  | Amount                    |        |                    |   |             |                                    
|Balances at January 1, 2009                  |  | 34,422,765           |  | $                         | 34,423 |                    | $ | 381,701,973 |                                     | $ | (204,478,210 | )             |  | $ | 2,764,094                |   |  | $ | (2,214,912 | ) |  | $ | 177,807,368 |  
|Comprehensive income (loss):                 |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|Net loss                                     |  |                     |  |                           |       |                    |   |            |                                     |   | (3,475,076   | )             |  |   |                         |   |  |   |           |   |  |   | (3,475,076  | )
|Foreign currency translation, net of tax     |  |                     |  |                           |       |                    |   |            |                                     |   |             |               |  |   | (778,984                 | ) |  |   |           |   |  |   | (778,984    | )
|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|                                             |  |                      |  |                           |        |                    |  
|Total comprehensive loss                     |  |                     |  |                           |       |                    |   |            |                                     |   | (3,475,076   | )             |  |   | (778,984                 | ) |  |   |           |   |  |   | (4,254,060  | )
|Issuances of common stock:                   |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|Stock options, warrants and restricted stock |  | 235,605              |  |                           | 236    |                    |   | 50,355      |                                     |   |             |               |  |   |                         |   |  |   |           |   |  |   | 50,591      |  
|Stock based compensation                     |  |                     |  |                           |       |                    |   | 1,038,968   |                                     |   |             |               |  |   |                         |   |  |   |           |   |  |   | 1,038,968   |  
|Purchases of treasury stock                  |  |                     |  |                           |       |                    |   |            |                                     |   |             |               |  |   |                         |   |  |   | (351,187   | ) |  |   | (351,187    | )
|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|                                             |  |                      |  |                           |        |                    |  
|Balances at March 31, 2009                   |  | 34,658,370           |  | $                         | 34,659 |                    | $ | 382,791,296 |                                     | $ | (207,953,286 | )             |  | $ | 1,985,110                |   |  | $ | (2,566,099 | ) |  | $ | 174,291,680 |  
|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  

The accompanying notes are an integral part of this consolidated financial statement.



5



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ICx TECHNOLOGIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows



|                                                                            |  |                                       |            |   |      |   |             |  
|--------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                            |  | UnauditedThree Months Ended March 31, |           
|                                                                            |  | 2009                                  |            |   | 2008 |  
|Operating activities:                                                       |  |                                       |            |   |      |   |             |  
|Net loss                                                                    |  | $                                     | (3,475,076 | ) |      | $ | (12,137,518 | )
|Loss on sale of discontinued operations                                     |  |                                       |           |   |      |   | 902,885     |  
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Loss from continuing operations, net of tax                                 |  |                                       | (3,475,076 | ) |      |   | (11,234,633 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                       |            |   |      |   |             |  
|Stock based compensation                                                    |  |                                       | 1,038,968  |   |      |   | 1,670,489   |  
|Depreciation and amortization                                               |  |                                       | 3,101,546  |   |      |   | 3,286,784   |  
|Deferred income taxes                                                       |  |                                       | 33,935     |   |      |   | (87,578     | )
|Changes in operating assets and liabilities:                                |  |                                       |            |   |      |   |             |  
|Trade accounts receivable, net                                              |  |                                       | 9,117,848  |   |      |   | 3,036,598   |  
|Inventories                                                                 |  |                                       | 1,772,507  |   |      |   | (3,701,588  | )
|Prepaid expenses and other assets                                           |  |                                       | (616,044   | ) |      |   | (1,862,826  | )
|Accounts payable                                                            |  |                                       | (8,395,591 | ) |      |   | 1,215,268   |  
|Accrued expenses and other liabilities                                      |  |                                       | (1,835,290 | ) |      |   | (1,368,602  | )
|Deferred revenue                                                            |  |                                       | (5,853,265 | ) |      |   | (393,066    | )
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Net cash used in operating activities                                       |  |                                       | (5,110,462 | ) |      |   | (9,439,154  | )
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Investing activities:                                                       |  |                                       |            |   |      |   |             |  
|Purchases of property, plant and equipment                                  |  |                                       | (664,548   | ) |      |   | (1,362,336  | )
|Other                                                                       |  |                                       |           |   |      |   | (22,400     | )
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Net cash used in continuing investing activities                            |  |                                       | (664,548   | ) |      |   | (1,384,736  | )
|Proceeds from the sale of discontinued operations                           |  |                                       |           |   |      |   | 397,115     |  
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Net cash used in investing activities                                       |  |                                       | (664,548   | ) |      |   | (987,621    | )
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Financing activities:                                                       |  |                                       |            |   |      |   |             |  
|Proceeds from issuance of common stock                                      |  |                                       | 50,591     |   |      |   | 34,321      |  
|Borrowings under lines of credit                                            |  |                                       | 4,405,000  |   |      |   |            |  
|Repayments under lines of credit                                            |  |                                       | (2,023,928 | ) |      |   | (124,776    | )
|Repayments of notes payable and long-term debt                              |  |                                       | (15,467    | ) |      |   | (157,471    | )
|Purchase of treasury shares                                                 |  |                                       | (351,187   | ) |      |   | (51,929     | )
|Other, net                                                                  |  |                                       |           |   |      |   | 13,788      |  
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Net cash provided by (used in) financing activities                         |  |                                       | 2,065,009  |   |      |   | (286,067    | )
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Effect of foreign exchange rate on cash                                     |  |                                       | 226,043    |   |      |   | 44,792      |  
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Net change in cash and cash equivalents                                     |  |                                       | (3,483,958 | ) |      |   | (10,668,050 | )
|Cash and cash equivalents at beginning of period                            |  |                                       | 38,782,103 |   |      |   | 64,635,940  |  
|                                                                            |  |                                       |            |   |      |   |             |  
|                                                                            |  |                                      
|Cash and cash equivalents at end of period                                  |  | $                                     | 35,298,145 |   |      | $ | 53,967,890  |  
|                                                                            |  |                                       |            |   |      |   |             |  

The accompanying notes are an integral part of these consolidated financial statements.



6



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##### Table of Contents

ICx TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2009 and 2008



|1. | Description of the Business and Summary of Significant Accounting Policies
|-- | --------------------------------------------------------------------------



|(a) | General
|--- | -------

ICx Technologies, Inc. and
Subsidiaries (ICx or Company) was incorporated in the State of Delaware in 2003 to acquire, develop, and coordinate the operations of security technology companies. ICx develops and integrates advanced sensor technologies for
homeland security, force protection and commercial applications. The Companys proprietary sensors detect and identify chemical, biological, radiological, nuclear, and explosive threats, and deliver superior awareness and actionable
intelligence for wide-area surveillance, intrusion detection and facility security. These technologies are used in nuclear power plants, military installations, natural gas storage systems and pipelines, shopping malls, public transportation
systems, and port facilities.

The holders of a majority of ICx capital stock, DP1, LLC (DP1) and Valentis SB, L.P.
(Valentis), are under the common control of Wexford Capital, LLC (Wexford), which is an SEC registered investment advisor.

The accounting policies set forth in Note 1 to the consolidated financial statements contained in the Form 10-K filed with the Securities and Exchange Commission on March 31, 2009 have been followed in preparing the accompanying
consolidated financial statements. In the Companys opinion, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the Companys results of operations and financial position for the interim
periods presented have been made in the accompanying consolidated financial statements.



|(b) | Allowance for Trade Accounts and Notes Receivable
|--- | -------------------------------------------------

At March 31, 2009 and December 31, 2008, trade accounts receivable, net was comprised of the following:



|                                |  |               |            |   |                  |   |            |  
|------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                |  | March 31,2009 |            |   | December 31,2008 |  
|U.S. government                 |  | $             | 7,764,952  |   |                  | $ | 16,389,174 |  
|Commercial and other            |  |               | 20,535,671 |   |                  |   | 21,099,243 |  
|                                |  |               |            |   |                  |   |            |  
|                                |  |              
|                                |  | $             | 28,300,623 |   |                  | $ | 37,488,417 |  
|Allowance for doubtful accounts |  |               | (444,479   | ) |                  |   | (387,414   | )
|                                |  |               |            |   |                  |   |            |  
|                                |  |              
|Trade accounts receivable, net  |  | $             | 27,856,144 |   |                  | $ | 37,101,003 |  
|                                |  |               |            |   |                  |   |            |  



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##### Table of Contents

One commercial customer accounted for 13% of net trade accounts receivable at March 31, 2009, and
another commercial customer accounted for 16% of net trade accounts receivable at December 31, 2008. Additionally, the U.S. government accounted for 10% or greater of the net trade accounts receivable balance at March 31, 2009 and
December 31, 2008.



|(c) | Inventories
|--- | -----------

At March 31, 2009 and
December 31, 2008, inventories were comprised of the following:



|                         |  |               |            |   |                  |   |            |  
|------------------------ |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                         |  | March 31,2009 |            |   | December 31,2008 |  
|Raw materials            |  | $             | 13,718,744 |   |                  | $ | 16,488,914 |  
|Work in progress         |  |               | 3,949,362  |   |                  |   | 3,090,484  |  
|Finished goods           |  |               | 7,375,252  |   |                  |   | 7,329,576  |  
|                         |  |               |            |   |                  |   |            |  
|                         |  |              
|                         |  | $             | 25,043,358 |   |                  | $ | 26,908,974 |  
|Reserve for obsolescence |  |               | (741,186   | ) |                  |   | (679,342   | )
|                         |  |               |            |   |                  |   |            |  
|                         |  |              
|                         |  | $             | 24,302,172 |   |                  | $ | 26,229,632 |  
|                         |  |               |            |   |                  |   |            |  



|(d) | Goodwill and Other Intangible Assets
|--- | ------------------------------------

Goodwill is not amortized, but instead is tested for impairment at least annually. Pursuant to the Companys policies for assessing impairment of goodwill and long-lived assets, no goodwill was written off in the first quarter of 2009
or 2008. The Company has not historically incurred significant costs to renew or extend the term of recognized intangible assets.



|(e) | Revenue Recognition
|--- | -------------------

The Company recognizes
revenue from product sales in accordance with Staff Accounting Bulletin No. 104 as amended, when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and
collection from the customer is reasonably assured. Product revenue is generally recognized upon shipment, unless customer acceptance is required, in which case product revenue is recognized when documentation of customer acceptance is received.

The Company earns contract research and development revenue by performing research and development primarily under contracts entered into
with the U.S. government or as subcontractors to other commercial entities that contract with the U.S. government. The Company earns the majority of its service and other revenue from custom development services and project management and technology
integration services under contracts entered into with various U.S., state or local government agencies or other commercial entities that contract with these agencies. Most of these contracts are either based on costs incurred plus a fixed fee or
are based on a fixed price. The Company recognizes revenue from these contracts using the percentage of completion method in accordance with Statement of Position 81-1 as prescribed by the American Institute of Certified Public Accounts Audit and
Accounting Guide, Audits of Federal Government Contractors. The Company principally uses labor efforts expended and estimated gross profit as a percentage of total estimated costs and contract value or contract milestones to measure the
progress of contract completeness. Revisions in cost and contract value estimates during the progress of work have the effect of adjusting earnings in the current period for work that may have been performed in prior periods. When estimates of
current costs indicate a loss, provision is made for the total anticipated loss in the current period. Under cost plus fixed fee contracts, the Company may bill and be reimbursed for costs incurred in advance of revenue recognition if the percentage
of contract completeness does not coincide with costs incurred. Additionally, certain fixed price contracts provide for billings and/or payments that may not coincide with revenue recognition. To the extent that customer billings or payments are in
excess of revenues, the excess is recorded as deferred revenue and contract costs in excess of expected earnings under the contract are deferred. At March 31, 2009 and December 31, 2008, the Company had included in deferred revenue
$1,670,991 and $7,215,063 of excess billings or customer payments, respectively, related to percentage of completion timing differences. At March 31, 2009 and December 31, 2008, this amount included $400,923 and $4,976,523, respectively,
in advanced payments received from a customer for a custom platform development project. Deferred contract costs at March 31, 2009 and December 31, 2008 were not material. In certain circumstances, revenue is recognized and costs are
accrued under the percentage of completion method under cost plus and fixed fee contracts. Additionally, revenue may be recognized prior to billings on these contracts. Such amounts are recorded as unbilled revenue and are expected to be collected
within one year of recognition, and if contract costs incurred are below the earnings that are expected to be realized upon contract completion are accrued until the costs are incurred. At March 31, 2009 and December 31, 2008, the Company
had unbilled revenue of $9,767,457 and $10,996,971, respectively, included in other current assets in the accompanying financial statements, substantially all of which is expected to be collected within one year. At March 31, 2009 and
December 31, 2008, this amount included $969,222 and $4,889,824, respectively, of unbilled revenue related to a custom platform development project. Accrued contract costs at March 31, 2009 and December 31, 2008, were not material.
The Company had no material claims outstanding under its research and development contracts as at March 31, 2009.

Warranty income
under separate agreements is recognized ratably over the life of the warranty. The Company recognizes revenue from services at the time the related services are performed. Deferred revenue includes $1,281,370 and $1,432,184 at March 31, 2009
and December 31, 2008, respectively, of warranty agreements and prepayments on service contracts.

The Company recognizes software
revenue under the provisions of the Accounting Standards Executive Committees Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition (as amended by SOP 98-9). Revenue from software license fees is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collection from the customer is reasonably assured. Revenue from post contract customer maintenance and support is deferred and recognized
ratably over the life of the post contract customer maintenance and support agreement. Deferred revenue includes $214,885 and $405,737 at March 31, 2009 and December 31, 2008, respectively, of revenue deferred under multiple-element
software arrangements for post contract customer support.



8



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##### Table of Contents

|(f) | Accounting for Stock-Based Compensation
|--- | ---------------------------------------

The
Company accounts for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) requires equity-classified, share-based payments to employees, including grants of employee
stock options, to be valued at fair value on the date of grant and to be expensed over the applicable vesting period. Under SFAS 123(R), share-based awards granted or modified are recognized in compensation expense over the applicable vesting
period.

During the three months ended March 31, 2009 and 2008, the Company recorded non-cash stock-based compensation expense of
$1,038,968 and $1,670,489, respectively. As of March 31, 2009, and December 31, 2008, the Companys total unrecognized compensation cost related to stock-based awards was $3.9 million and $5.4 million, respectively.



|(g) | Loss Per Share
|--- | --------------

The Company calculates loss
per share in accordance with SFAS No. 128, Earnings Per Share (SFAS 128). Under SFAS 128, basic loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of
common shares outstanding during each reporting period. Diluted loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during each period adjusted for
the effect of dilutive potential common shares calculated using the treasury stock method. However, the computation of diluted loss per share shall not assume the conversion or exercise of options that would have an anti-dilutive effect (a decrease
in loss per share) on loss per share. For the quarter ended March 31, 2009, the Company had 34,488,639 weighted average shares outstanding and all of the Companys potential common shares were anti-dilutive as the Company was in a net loss
position. Those potential common shares consisted of 598,882 weighted average shares of stock. For the quarter ended March 31, 2008, the Company had 33,715,409 weighted average shares outstanding, and all of the Companys potential common
shares were anti-dilutive as the Company was in a net loss position. Those potential common shares consisted of 625,909 weighted average shares of stock.



|(h) | Reclassifications
|--- | -----------------

Certain 2008 balances in
Note 9 to the consolidated financial statements have been reclassified to conform to the 2009 presentation, as the Company began allocating all general and administrative expenses to reportable segments. These reclassifications had no impact on
reported net income.



9



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##### Table of Contents

|(i) | Fair Value Measurements
|--- | -----------------------

Effective
January 1, 2008, the Company adopted the provisions of SFAS 157, Fair Value Measurements(SFAS 157), for financial assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. On January 1, 2009, the Company adopted the provisions of SFAS 157 for nonfinancial assets and liabilities. Under SFAS 157, fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. SFAS 157 describes a fair value hierarchy based on three levels of inputs, of which the first two
are considered observable and the last unobservable, that may be used to measure fair value:



| |  |  | Level 1  Quoted prices in active markets for identical assets or liabilities.
| | - |  | ------------------------------------------------------------------------------



| |  |  | Level 2  Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices
in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

As required under SFAS 157, the Company maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed price or quotes are not available, the Company employs internally-developed models that primarily use
market-based inputs including yield curves and interest rates, among others.

The Company considers cash and cash equivalents, trade
accounts receivable, accounts payable, and accrued expenses to be financial instruments in which the carrying amounts represent fair value because of the short-term nature of the accounts. The Company also considers notes payable, lines of credit,
and long-term debt to be financial instruments in which the carrying amounts approximate fair value because of their short-term nature, variable interest rates or rates that approximate market.

Nonfinancial nonrecurring assets and liabilities included in the Companys consolidated balance sheet include long lived assets such as property,
plant and equipment, intangibles and goodwill, which are measured at fair value to test for and measure an impairment charge, when necessary. During the three months ended March 31, 2009, no such nonfinancial assets or liabilities were
remeasured to fair value.



|(j) | Recent Accounting Pronouncements
|--- | --------------------------------

The
Financial Accounting Standards Board (FASB) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. The Company has reviewed the recently issued pronouncements and
concluded that the following new accounting standards are applicable to the Company.

In December 2007, the FASB issued SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 5, Consolidated Financial Statements. SFAS 160 changes the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity in the Companys consolidated balance sheet. SFAS 160 is effective as of the beginning of an entitys first fiscal year
that begins after December 15, 2008. Early adoption is prohibited. Adoption of SFAS 160 on January 1, 2009 did not have a material impact on the consolidated financial statements as the Company does not currently have any material
noncontrolling interests.

In December 2007, the FASB issued SFAS 141(R), Business Combinations, (SFAS 141(R)). SFAS
No. 141(R) establishes standards for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS
No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for determining what information to disclose in connection with a business combination. Among other things, SFAS
No. 141(R) requires securities issued be valued as of the acquisition date, transaction costs incurred in connection with an acquisition be expensed, except acquiree costs that meet the criteria of SFAS No. 146, contingent consideration be
recorded at fair value as of the date of acquisition with subsequent changes reflected in income, and in-process research and development be capitalized as an intangible asset. The provisions of SFAS 141(R) are applicable to business combinations
consummated on or after December 15, 2008. Early application is prohibited. The provisions of SFAS141(R) may impact the Companys accounting for future business combinations, as the Company often includes provisions for the issuance
of contingent consideration based on future earnings in its acquisitions.

In December 2007, the SEC issued Staff Accounting Bulletin
No. 110, Share-Based Payment, (SAB 110) regarding the use of a simplified method, as discussed in SAB No. 107, Share-Based Payment(SAB 107), in developing an estimate of expected term of plain vanilla
share options in accordance with SFAS No. 123(R), Share-Based Payment. In SAB 110, the staff indicated that it will accept a companys election to use the simplified method, regardless of whether the company has sufficient
information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior would, over time, become readily available to companies.
Therefore, the staff stated in SAB 110 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may
not be widely available, particularly if a company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded.
Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for plain vanilla share options. However, as
additional information becomes available to allow us to estimate expected term, we will discontinue use of the simplified method, as required by SAB 110. We do not believe discontinued use of the simplified method will have a material impact on our
consolidated financial position or results of operations.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
Determination of the Useful Life of Intangible Assets, (FSP FAS 142-3), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. FSP
FAS 142-3 will improve the consistency between the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under SFAS
141, Business Combinations , and other U.S. GAAP. FSP FAS 142-3 is effective as of the beginning of an entitys first fiscal year that begins after December 15, 2008. Early adoption is prohibited. Adoption of FSP FAS 142-3 on
January 1, 2009, did not have a significant impact on the Companys consolidated financial position or results of operations.

In
June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 addresses whether unvested share-based
payment awards with rights to receive dividends or dividend equivalents should be considered as participating securities for the purposes of applying the two-class method of calculating earnings per share (EPS) under SFAS 128. The FASB
staff concluded that unvested share-based payments awards that contain nonforfeitable rights to receive dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of
computing EPS. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years and requires that all prior period EPS data presented be adjusted retrospectively. Early application is
not permitted. Adoption of EITF 03-6-1 on January 1, 2009, did not have a material impact on the Companys consolidated financial position or results of operations.

In November 2008, the FASB issued Emerging Issues Task Force No. 08-6, Equity Method Investment Accounting Considerations, (EITF 08-6), which
clarifies a number of matters associated with the impact of SFAS 141(R) and SFAS 160 on accounting for equity method investments. EITF 08-6 is effective as of the beginning of an entitys first fiscal year that begins after December 15,
2008. Early adoption is prohibited. Adoption of EITF 08-6 on January 1, 2009 did not have a material impact on the consolidated financial statements as the Company does not currently have any material equity method investments.

In November 2008, the FASB ratified Emerging Issues Task Force No. 08-7, Accounting for Defensive Intangible Assets, (EITF 08-7), which
clarifies the accounting for defensive intangible assets, or certain separately identifiable intangible assets acquired in a business combination that an entity does not intend to actively use but intends to hold to prevent its competitors from
obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounts that should be amortized to expense over the period the asset diminishes in value. EITF
08-7 is effective for all intangible assets acquired on or after the first fiscal year beginning on or after December 15, 2008. Early adoption is not permitted. The provisions of EITF 08-7 may impact the Companys accounting for future
business combinations if defensive intangible assets are acquired.

In April 2009, the FASB issued FASB Staff Position FSP
No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141(R)-1). FSP 141(R)-1 amends the provisions in FASB Statement 141(R) for the initial recognition and
measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141(R)-1 eliminates the distinction between contractual and non-contractual contingencies,
including the initial recognition and measurement criteria in Statement 141(R) and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141(R)-1 is effective for contingent assets and contingent liabilities
acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008. The provisions of SFAS141(R)-1 may impact the Companys accounting for future
business combinations.

In April 2009, the FASB issued FASB Staff Position No. FSP FAS 107-1 and Accounting Principles Board (APB)
28-1, Interim Disclosures about Fair Value of Financial Instruments(FSP 107-1). FSP 107-1 amends FAS No. 107, Disclosures about Fair Value of Financial Instruments,to require an entity to provide disclosures about fair value of
financial instruments in interim financial statements. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The Company will adopt FSP 107-1 for its quarter ending June 30, 2009. FSB 107-1 is not expected to impact the Companys consolidated financial position or results of operations.

In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments(FSP 115-2). The guidance applies to investments in debt securities for which other-than-temporary impairments may be recorded and also expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity
securities in the financial statements. FSP 115-2 is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company
will adopt FSP 115-2 for its quarter ending June 30, 2009. FSP FAS 115-2 is not expected to impact the Companys consolidated financial position or results of operations.

In April 2009, the FASB issued FASB Staff Position No. 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). Based on FSP FAS 157-4, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a
transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with FAS 157. FSP FAS 157-4 is to be
applied prospectively and is effective for interim and annual periods ending after June 15, 2009. The Company will adopt FSP FAS 157-4 for its quarter ending June 30, 2009. FSP FAS 157-4 is not expected to impact the Companys
consolidated financial position or results of operations.



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##### Table of Contents

|2. | Related Party Transactions
|-- | --------------------------

Securities Issued
to Insiders

DP1 directly holds more than 5% of the Companys capital stock. Joseph Jacobs, a member of the Companys
Board of Directors, is a member of certain affiliates that own or control DP1, DP2 and Debello Investors, LLC. Hans Kobler, Executive Chairman of the Board, has an indirect ownership interest in DP1 and DP2 through an affiliate but otherwise
disclaims beneficial ownership of DP1 or DP2.

Administrative Services Agreement with Wexford

The Company entered into an Administrative Services Agreement with Wexford under which the Company may request certain legal, accounting, back office, and
other services. The Company is obligated to reimburse Wexford for all of its direct and indirect costs allocated to the performance of such services. The Company incurred general and administrative expenses of $17,903 and $40,591 in the first three
months of 2009 and 2008, respectively, pursuant to the agreement. Either party may terminate specific services or cancel the agreement upon written notice to the other party.

Leases

Juergen Stein, CEO and
President of Target GmbH, a subsidiary of the Company, leases facilities to the Company under a lease agreement dated January 1, 2005. Rent expense of $27,000 was incurred in the first three months of 2009 and 2008. The lease term ends on
December 31, 2020, and can be renewed for one year terms thereafter.

Strange Family Holdings, LLP, leases facilities to the Company
under a lease agreement dated June 15, 2005. Rent expense of $17,074 and $20,177 was incurred in the first three months of 2009 and 2008, respectively. The lease term ends on September 15, 2009, and can be renewed for six additional one
year terms thereafter. Certain family members of the Strange family hold senior management positions in one of the Companys subsidiaries.



|3. | Commitments and Contingencies
|-- | -----------------------------

The Company is
routinely involved in various legal matters arising from the normal course of business. Management believes that losses, if any, arising from such actions will not have a material adverse effect on the financial position or results of operations of
the Company.



|4. | Income Taxes
|-- | ------------

The Company has adopted the
provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). As of March 31, 2009 and December 31, 2008, the Company had unrecognized
tax benefits of $1.4 million. If recognized in future periods, $1.4 million would reduce the Companys effective income tax rate. No interest or penalties have been accrued. The Company does not expect the unrecognized tax benefits to
significantly change within the next 12 months. The Company has elected to report interest and penalties as a component of income tax expense.



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##### Table of Contents

|5. | Lines of Credit
|-- | ---------------

Lines of Credit

Certain of the Companys subsidiaries have operating lines of credit with banks in which borrowing is generally collateralized by and
based on a percentage of certain eligible accounts receivable, inventory, and/or property and equipment. Interest is based on prime or, in some cases, percentage points above prime.

At March 31, 2009, lines of credit consisted of a $2,381,072 outstanding balance on a line of credit with a maximum borrowing amount of $2.5
million, an effective interest rate of 5.50% and a maturity date of April 26, 2009. In April 2009, the Company renewed this line of credit through April 26, 2011 with similar terms.



|6. | Treasury Stock
|-- | --------------

As part of the Companys
stock-based compensation plans, the Company offers employees the opportunity to make required tax payments with cash or through a net share settlement. For employees choosing net share settlement, the Company makes required tax payments on behalf of
employees as their stock awards vest and then withholds a number of vested shares having a value on the date of vesting equal to the tax obligation. The shares withheld were recorded as treasury shares. During the three months ended March 31,
2009, the Company repurchased 74,926 shares in settlement of employees tax obligations for a total of $351,187 or an average of $4.69 per share.



|7. | Stock-Based Compensation
|-- | ------------------------

The following table
summarizes activity for nonvested restricted stock (RS) and nonvested restricted stock units (RSUs) granted under the 2007 Equity Incentive Plan for the three months ended March 31, 2009:



|                                               |  |                       |   |  |                           |      
|---------------------------------------------- |  | --------------------- | - |  | ------------------------- | -----
|                                               |  | 2009                 
|                                               |  | RestrictedStock Units |   |  | WeightedAverageFair Value
|Nonvested RS and RSUs outstanding at January 1 |  | 710,470               |   |  | $                         | 9.17 
|RS and RSUs granted                            |  | 72,837                |   |  |                           | 4.14 
|RS and RSUs vested                             |  | (219,790              | ) |  |                           | 7.28 
|RS and RSUs forfeited                          |  | (58,362               | ) |  |                           | 11.38
|                                               |  |                       |   |  |                           |      
|                                               |  |                      
|Nonvested RS and RSUs outstanding at March 31  |  | 505,155               |   |  | $                         | 9.04 
|                                               |  |                       |   |  |                           |      



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##### Table of Contents

The Company recorded stock-based compensation expense of $810,435 and $1,131,803 during the three months
ended March 31, 2009 and 2008, respectively, in connection with grants of RS and RSUs. Grants of restricted stock and restricted stock units are valued using the closing market price of the Companys common stock on the date of grant.

The aggregate intrinsic value of outstanding restricted stock and restricted stock units at March 31, 2009 was $2,045,878. Also at
March 31, 2009, total compensation cost related to nonvested restricted stock and RSU awards that had not yet been recognized totaled $3,512,871. The weighted average period over which this amount will be recognized is estimated to be 1.9
years.

Stock option activity for options issued under the 2007 Equity Incentive Plan was as follows as of March 31, 2009, and for the
three months then ended:



|                                         |  |                         |   |  |                              |      |                                                   |      |                         |   |        
|---------------------------------------- |  | ----------------------- | - |  | ---------------------------- | ---- | ------------------------------------------------- | ---- | ----------------------- | - | -------
|                                         |  | SharesSubject toOptions |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm(in years) |      | AggregateIntrinsicValue
|Options outstanding at January 1, 2009   |  | 2,790,527               |   |  | $                            | 9.56 |                                                   |      |                         |   |        
|Options granted                          |  |                        |   |  |                              |     |                                                   |      |                         |   |        
|Options exercised                        |  | (21,823                 | ) |  |                              | 2.32 |                                                   |      |                         |   |        
|Options terminated, cancelled or expired |  | (53,989                 | ) |  |                              | 9.77 |                                                   |      |                         |   |        
|                                         |  |                         |   |  |                              |      |                                                   |      |                         |   |        
|                                         |  |                         |   | 
|Options outstanding at March 31, 2009    |  | 2,714,715               |   |  | $                            | 9.63 |                                                   | 5.92 |                         | $ | 833,844
|                                         |  |                         |   |  |                              |      |                                                   |      |                         |   |        
|                                         |  |                         |   | 
|Options exercisable at March 31, 2009    |  | 2,565,367               |   |  | $                            | 9.66 |                                                   | 5.84 |                         | $ | 826,936
|                                         |  |                         |   |  |                              |      |                                                   |      |                         |   |        

No options were granted during the three months ended March 31, 2009. For options granted in
2008, the fair value of options was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:



|                                     |  |      |        |  
|------------------------------------ |  | ---- | ------ | -
|For the three months ended March 31, |  | 2008 |       
|Grant date fair value                |  | $    | 3.17   |  
|Risk-free interest rate              |  |      | 4.00   | %
|Dividend yield                       |  |      |       | %
|Expected life (years)                |  |      | 5-6.25 |  
|Expected volatility                  |  |      | 42%-43 | %

No dividend yield assumption was included because the Company does not plan to pay dividends.

There were no board-discretionary stock options granted, exercised, terminated, cancelled or expired during the three months ended
March 31, 2009.

Stock-based compensation expense pertaining to stock options totaled $228,533 and $538,686 for the three months ended
March 31 2009 and 2008, respectively. Cash received from the exercise of stock options totaled $50,591 and $34,321 for the three months ended March 31, 2009 and 2008, respectively.

The aggregate intrinsic value of outstanding options at March 31, 2009 was $1,454,688. Also at March 31, 2008, total compensation cost related
to nonvested awards that had not yet been recognized totaled $418,379. The weighted average period over which this amount will be recognized is estimated to be 1.3 years.



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##### Table of Contents

|8. | Discontinued Operations
|-- | -----------------------

In the first quarter of
2008, the Company realized a loss on discontinued operations of $902,885 related to the settlement of escrow accounts and contingent purchase consideration related to three 2007 sales of businesses in the Companys Laser segment. The Company
decided to sell these units primarily because the business models did not align with the strategic plans of the Company.



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##### Table of Contents

|9. | Segment Information
|-- | -------------------

Segment information has been
prepared in accordance with SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. The Company has three reportable segments: detection, surveillance, and solutions. The detection segment provides chemical,
biological, radiological, nuclear, and radiation detection activities. The surveillance segment provides perimeter security and monitoring. The solutions segment designs, creates, and deploys security operating systems and video networking systems.
Intersegment revenues are fully eliminated in consolidation. Due to changes in the Companys internal structure, we began allocating all general and administrative expenses to the Companys reportable segments in 2009, whereas a portion of
general and administrative expenses remained unallocated to segments in 2008. In 2009 and 2008, all sales and marketing expenses have been allocated to the Companys reportable segments. Segment information disclosed below for the three months
ended March 31, 2008, has been reclassified to conform to the 2009 presentation. Intersegment revenues are not presented for 2008, as it is not significant.

The following is a summary of information for the Companys reportable segments:



|                                                |  |                                           |             |   |              |   |            |           |  |   |                  |   |  |   |             |  
|----------------------------------------------- |  | ----------------------------------------- | ----------- | - | ------------ | - | ---------- | --------- |  | - | ---------------- | - |  | - | ----------- | -
|                                                |  | For the three months ended March 31, 2009 |            
|                                                |  | Detection                                 |             |   | Surveillance |   |            | Solutions |  |   | SegmentsCombined |  
|Total revenues                                  |  | $                                         | 21,197,607  |   |              | $ | 16,079,575 |           |  | $ | 10,655,489       |   |  | $ | 47,932,671  |  
|Intersegment revenues                           |  |                                           |            |   |              |   |           |           |  |   | (148,710         | ) |  |   | (148,710    | )
|                                                |  |                                           |             |   |              |   |            |           |  |   |                  |   |  |   |             |  
|Revenues from external customers                |  |                                           | 21,197,607  |   |              |   | 16,079,575 |           |  |   | 10,506,779       |   |  |   | 47,783,961  |  
|                                                |  |                                           |             |  
|Segment operating losses                        |  |                                           | (2,739,902  | ) |              |   | (402,799   | )         |  |   | (125,767         | ) |  |   | (3,268,468  | )
|Depreciation and amortization                   |  |                                           | 1,914,777   |   |              |   | 743,801    |           |  |   | 258,580          |   |  |   | 2,917,158   |  
|Segment property, plant and equipment additions |  |                                           | 616,566     |   |              |   | (12,965    | )         |  |   | 18,162           |   |  |   | 621,763     |  
|                                                |  |                                           |             |  
|As of March 31, 2009                            |  |                                           |             |   |              |   |            |           |  |   |                  |  
|Segment total assets                            |  | $                                         | 101,119,679 |   |              | $ | 41,842,105 |           |  | $ | 24,711,727       |   |  | $ | 167,673,511 |  
|Segment goodwill                                |  |                                           | 51,316,274  |   |              |   | 12,736,716 |           |  |   | 6,725,435        |   |  |   | 70,778,425  |  
|                                                | 
|                                                |  | For the three months ended March 31, 2008 |            
|                                                |  | Detection                                 |             |   | Surveillance |   |            | Solutions |  |   | SegmentsCombined |  
|Revenues from external customers                |  | $                                         | 19,645,791  |   |              | $ | 10,803,639 |           |  | $ | 5,803,646        |   |  | $ | 36,253,076  |  
|Segment operating losses                        |  |                                           | (5,341,011  | ) |              |   | (3,713,155 | )         |  |   | (2,357,596       | ) |  |   | (11,411,762 | )
|Depreciation and amortization                   |  |                                           | 1,860,841   |   |              |   | 747,692    |           |  |   | 533,446          |   |  |   | 3,141,979   |  
|Segment property, plant and equipment additions |  |                                           | 533,114     |   |              |   | 228,526    |           |  |   | 91,802           |   |  |   | 853,442     |  
|                                                |  |                                           |             |  
|As of December 31, 2008                         |  |                                           |             |   |              |   |            |           |  |   |                  |  
|Segment total assets                            |  | $                                         | 105,397,381 |   |              | $ | 52,108,392 |           |  | $ | 25,569,641       |   |  | $ | 183,075,414 |  
|Segment goodwill                                |  |                                           | 51,316,274  |   |              |   | 12,736,716 |           |  |   | 6,765,240        |   |  |   | 70,818,230  |  

Following is a reconciliation of the Companys operating losses from reportable segments to
the total Company loss before income taxes:



|                                                  |  |                                      |            |   |      |   |             |  
|------------------------------------------------- |  | ------------------------------------ | ---------- | - | ---- | - | ----------- | -
|                                                  |  | For the three months ended March 31, |           
|                                                  |  | 2009                                 |            |   | 2008 |  
|Operating losses from reportable segments         |  | $                                    | (3,268,468 | ) |      | $ | (11,411,762 | )
|Unallocated depreciation and amortization expense |  |                                      | (184,388   | ) |      |   | (144,805    | )
|Interest income                                   |  |                                      | 51,853     |   |      |   | 429,549     |  
|Interest expense                                  |  |                                      | (17,279    | ) |      |   | (17,704     | )
|Other non-operating gains (losses), net           |  |                                      | 56,495     |   |      |   | (122,124    | )
|                                                  |  |                                      |            |   |      |   |             |  
|                                                  |  |                                     
|Loss before income taxes                          |  | $                                    | (3,361,787 | ) |      | $ | (11,266,846 | )
|                                                  |  |                                      |            |   |      |   |             |  

Following is a reconciliation of the property, plant and equipment additions from the
Companys reportable segments to the total property, plant and equipment additions of the Company:



|                                                                       |  |                                      |         |      |   |          
|---------------------------------------------------------------------- |  | ------------------------------------ | ------- | ---- | - | ---------
|                                                                       |  | For the three months ended March 31,
|                                                                       |  | 2009                                 |         | 2008
|Total property, plant and equipment additions from reportable segments |  | $                                    | 621,763 |      | $ | 853,442  
|Unallocated property, plant and equipment additions                    |  |                                      | 42,785  |      |   | 508,894  
|                                                                       |  |                                      |         |      |   |          
|                                                                       |  |                                     
|Total property, plant and equipment additions                          |  | $                                    | 664,548 |      | $ | 1,362,336
|                                                                       |  |                                      |         |      |   |          

Following is a reconciliation of the total assets from the Companys reportable segments to
the total assets of the Company:



|                                              |  |                |             |                   |   |            
|--------------------------------------------- |  | -------------- | ----------- | ----------------- | - | -----------
|                                              |  | March 31, 2009 |             | December 31, 2008
|Total assets from reportable segments         |  | $              | 167,673,511 |                   | $ | 183,075,414
|Unallocated cash and cash equivalents         |  |                | 29,108,734  |                   |   | 31,640,943 
|Unallocated prepaid expenses and other assets |  |                | 5,686,578   |                   |   | 4,562,160  
|Deferred income taxes                         |  |                | 19,935      |                   |   | 19,935     
|                                              |  |                |             |                   |   |            
|                                              |  |               
|Total assets                                  |  | $              | 202,488,758 |                   | $ | 219,298,452
|                                              |  |                |             |                   |   |            



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##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risk and uncertainties. Our actual results could differ materially from those discussed below. Factors that
could cause or contribute to these differences include, but are not limited to those identified below, and those discussed in the section entitled Risk Factors included elsewhere in this report.

Forward-looking Statements

In
this Quarterly Report on Form 10-Q, ICx Technologies, Inc. and its consolidated subsidiaries are referred to as ICx, we, us, or our. This report on Form 10-Q includes forward looking statements. All
statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are
forward-looking statements. We attempt, whenever possible, to identify these forward-looking statements by words such as may, will, could, should, expect, intend,
plan, anticipate, believe, estimate, predict, potential or continue, and similar expressions. We have based these forward looking statements largely on our current
expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations and objectives, and financial needs.
These forward looking statements are subject to a number of risks, uncertainties and assumptions. In light of these risks, uncertainties and assumptions, the forward looking events and circumstances discussed in this Form 10-Q may not occur, and
actual results could differ materially and adversely from those anticipated or implied in the forward looking statements.

You
should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity,
performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.

You should read this Form 10-Q and the documents that we reference in this Form 10-Q and have filed with the SEC with the understanding that our
actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

Overview

We are a leader in the development and integration of advanced sensor technologies for homeland security, force
protection and commercial applications. Our proprietary sensors detect and identify chemical, biological, radiological, nuclear and explosive threats, and deliver superior awareness and actionable intelligence for wide-area surveillance, intrusion
detection and facility security. By leveraging our technical expertise, ICx pioneers the integration of these advanced sensors into effective security and commercial solutions. We were incorporated in 2003, and our business was primarily formed
through a series of complementary acquisitions in 2005.

We operate our business in three reportable segments: Detection, Surveillance and
Solutions. Our Detection segment develops products and conducts research and development in the areas of chemical, biological, radiation, nuclear and explosives detection. Our Surveillance segment provides products and services for perimeter
security and wide area surveillance. Our Solutions segment integrates our technologies and products to provide single source solutions that address a broad range of customer specific security and surveillance needs.

Our direct customers include federal agencies such as the U.S. Department of Homeland Security, U.S. Customs & Border Protection (Border Patrol)
and the U. S. Transportation Security Administration, as well as various state and local governments and agencies, including the New York Police Department and the Port of Long Beach. We also provide products, components and sub-systems to leading
integrators in the security and defense industries who either resell our



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##### Table of Contents

products or integrate them into comprehensive security installations for their end customers. The value-added-resellers and system integrators that we sell
products to include The Boeing Company, Honeywell International, Inc., Northrop Grumman Corp., Raytheon Company, SAIC, Inc. and Thermo Fisher Scientific, Inc. We also sell to military customers such as the U.S. Department of Defense, the U.S. Air
Force, the U.S. Marines and the U.S. Army. We also sell to private sector customers such as Federal Express Corporation, The Walt Disney Company and two international airports serving the city of Houston, Texas and surrounding communities. Due to
the breadth and diverse nature of our product and technology portfolio and our ability to deliver solutions for a comprehensive range of critical security applications, the future success of our business is not dependent upon a single product,
technology, customer or government program.

Our objective is to grow our business organically and through the acquisition of complementary
companies. To achieve this objective, we plan to:



| |  |  | continue to develop and acquire next generation technologies to strengthen our technological leadership position;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | continue converting our innovative technologies in our research and development pipeline into new products and platforms to pursue new market opportunities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continue to provide integrated, single-source solutions that prevent a broad range of critical security threats;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | continue to extend our geographic reach and market penetration;
| | - |  | ---------------------------------------------------------------



| |  |  | leverage our existing intellectual property and infrastructure to expand our addressable markets and further accelerate our growth; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | grow our business relationships and product offerings by acquiring select companies and assets that enhance our technology leadership, broaden our product offerings
or expand our customer relationships.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Key Business Metrics

We monitor a number of key metrics to help forecast growth, establish budgets, measure the effectiveness of our sales and marketing efforts, accelerate
product development and measure operational effectiveness.

Product Revenue. We were incorporated in 2003, and our business was
formed through a series of complementary acquisitions in 2005. Many of these businesses were in the early stages of transitioning advanced technologies into products, integrating solutions and developing marketing and sales strategies. Beginning in
2005, we began to develop a more comprehensive sales and marketing structure to support our business segments. A key measure of our success is product revenue growth. Because our financial statements present the results of operations of acquired
businesses from the date of acquisition, during periods in which we have significant acquisitions, we monitor revenue growth by comparing current periods against pro forma results of operations as if we had acquired the businesses as of the
beginning of the prior comparable periods.

Product Gross Profit. Our goal is to grow product gross profit to increase the
profitability of our business. Because of the emerging stage of many of our products, gross profit has been inconsistent and unpredictable. Key factors affecting our gross profit are volume pricing, warranty costs, product mix, economies of scale
and the ability to absorb fixed costs. Our ability to effectively monitor and manage these factors is important in attaining business profitability.

Research and Development.Our primary source of research and development funds is through direct contracts with the U.S. government and subcontracts with other commercial entities that contract with the
U.S. government. We refer to this externally funded research and development as contract research and development. We also invest in research and development activities using our own internal funds in an effort to accelerate new and enhanced product
offerings and to expand our technological leadership. We refer to this internally funded research and development as internal research and development. One of our key objectives is to expand our market share by continuing to convert advanced
technologies into products and single source integrated solutions. Accordingly, we intend to continue our research and development activities through both contract research and development and internal research and development programs to advance
our technologies, release new products and provide integrated solutions.



17



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##### Table of Contents

Description of Certain Factors Affecting our Revenue, Gross Profit and Operating Expenses

Product Revenue and Gross Profit. In our Detection segment, we primarily derive product revenue through the sale of a variety of
chemical, biological, radiological, nuclear and explosive sensor products. In our Surveillance segment, we primarily derive product revenue from the sale of integrated towers, thermal imaging cameras and radar products. In our Solutions segment, we
primarily derive product revenue from the sale of command and control advanced software products.

Our gross profit on product sales is
primarily impacted by the relative mix of higher and lower margin products, the efficiency and scale of our manufacturing operations, the relative mix of direct sales to end customers and sales through original equipment manufacturers and other
resellers, and the relative mix of products that are manufactured by us and those that are manufactured by third parties. We typically earn a higher gross profit on products that we sell directly to end customers and on products that we manufacture
ourselves. Because of the emerging stage of many of our products and our plans for new product introductions, we anticipate that our gross profit may continue to be impacted in the future by fixed overhead costs related to the expansion of our
manufacturing capacity. As a result of these factors, our product gross profit has been inconsistent and may continue to be inconsistent for the foreseeable future.

Contract Research and Development Revenue and Gross Profit. We earn contract research and development revenue by performing research and development primarily under contracts that we enter into directly
with the U.S. government or as subcontractors to other commercial entities that contract with the U.S. government. Most of our research and development contracts are either based on our cost plus a fixed fee, which is subject to a dollar cap, or are
fixed price. We account for earnings under long-term contracts using the percentage-of-completion method of accounting. See Critical Accounting Policies and EstimatesRevenue RecognitionContract Research and Development and
Services.

Gross profit on contract research and development revenue is primarily impacted by the mix of contract type and the
estimates inherent in recognizing revenue using the percentage-of-completion method of accounting. Our fee, or profit, under cost plus fixed fee contracts is based on a percentage of contract spending and is subject to a cap. On a fixed price
contract, we are generally only required to incur the costs necessary to complete the contract. The degree of accuracy in determining the costs to complete our deliverables may impact gross profit under both contract types.

Service and Other Revenue and Gross Profit. We derive service and other revenue from three sources: (i) custom product design and
development services, (ii) project management and technology integration services and (iii) training, installation and warranty contracts. Revenue from custom product design and development services and project management and technology
integration services is derived from our Surveillance and Solutions segments, while training, installation and warranty contract revenues are derived from all three of our segments. A significant portion of our revenue from project management and
technology integration services is derived from customers in the transportation industry. Most of our custom product design and development service contracts and project management and integration service contracts are for a fixed price and revenue
is recognized under the percentage of completion method. Revenue from training and installation contracts is recognized upon completion of services. Revenue under product maintenance and extended warranty contracts is generally recognized over the
requisite service period. See Critical Accounting PoliciesRevenue RecognitionService and Other.

Gross profit under
fixed price custom product design and development service contracts and project management and integration service contracts is primarily impacted by the degree of accuracy in estimating the costs to complete our deliverables under those contracts.
Because our product training, installation, maintenance and warranty contracts are generally based on standard services, we have historically recognized higher margins on those services than on our project management and integration services.

General and Administrative Expenses. General and administrative expenses represent the costs and expenses of managing and
supporting our operations. We increased our general administrative expenses in 2007 and 2006 through the use of consultants and other professionals to complete certain accounting and legal functions. We also increased general and administrative
expenses by hiring additional executive officers and advisors and in connection with our overall expansion of the business. In 2008, our general and administrative expenses began to decline as a result of our focused effort to eliminate redundancies
in our operations, primarily through reductions in personnel. In the first quarter of 2009, our general and administrative expenses decreased compared to the first quarter last year and we believe that our general and administrative expenses will
begin to stabilize or slightly decrease throughout 2009 compared to previous years as we continue to gain efficiencies in the overall integration of our business units and our efforts to control costs.

Sales and Marketing Expenses. Beginning in 2006 through the end of 2008, we increased our spending on sales, marketing and other related
business development matters to support our early stage products and emerging technologies and to support anticipated future growth in our business. With the downturn in the economy in late 2008 and the continued uncertainty in 2009, we have taken
steps to scale back certain aspects of our commercial sales and marketing activities. Accordingly, in the first quarter of 2009 our sales and marketing expenses decreased compared to the same quarter last year and we expect that our sales and
marketing expense will continue to decline compared to previous years throughout 2009.



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Research and Development. In addition to external funding we receive and record as revenue
from the U.S. government and other commercial entities for contract research and development activities, we also invest in research and development activities using our own internal funds in an effort to provide additional means for
accelerating the development of new and enhanced product offerings and to expand our technological leadership. The costs of our internally funded research and development are included in our operating expenses. Beginning in 2006 and throughout most
of 2008, we increased our spending on internally funded research and development activities and the integration of products and technologies among our reportable segments. One of our key objectives is to expand our market share by continuing to
convert advanced technologies into products and single source integrated solutions. In 2008, we significantly increased our externally funded research and development and have significant backlog going into 2009. Accordingly, in the first quarter of
2009 our internal research and development expenses decreased compared to the same quarter last year and we expect that our internal research and development expenses will decline in 2009 compared to previous years as we utilize our technical
resources on externally funded research and development activities.

Results of Operations - Comparison of First Quarters of 2009 and
2008

The following table presents selected summarized consolidated financial information for the three months ended March 31, 2009
and 2008.



|                                                       |  |                                    |        |   |      |   |         |  
|------------------------------------------------------ |  | ---------------------------------- | ------ | - | ---- | - | ------- | -
|                                                       |  | Three Months EndedMarch 31,        |       
|                                                       |  | 2009                               |        |   | 2008 |  
|                                                       |  | (dollars in thousands) (unaudited) |       
|Product revenue                                        |  | $                                  | 16,615 |   |      | $ | 20,364  |  
|Gross profit %                                         |  |                                    | 50.6   | % |      |   | 50.3    | %
|Contract research and development revenue              |  | $                                  | 11,282 |   |      | $ | 11,976  |  
|Gross profit %                                         |  |                                    | 26.3   | % |      |   | 35.8    | %
|Service and other revenue                              |  | $                                  | 19,887 |   |      | $ | 3,913   |  
|Gross profit %                                         |  |                                    | 28.0   | % |      |   | 34.7    | %
|                                                       |  |                                    |        |   |      |   |         |  
|                                                       |  |                                   
|Total revenue                                          |  | $                                  | 47,784 |   |      | $ | 36,253  |  
|                                                       |  |                                    |        |   |      |   |         |  
|                                                       |  |                                   
|Gross profit %                                         |  |                                    | 35.4   | % |      |   | 43.8    | %
|                                                       |  |                                    |        |   |      |   |         |  
|                                                       |  |                                   
|Operating loss excluding depreciation and amortization |  | $                                  | (351   | ) |      | $ | (8,270  | )
|Depreciation and amortization                          |  |                                    | 3,102  |   |      |   | 3,287   |  
|                                                       |  |                                    |        |   |      |   |         |  
|                                                       |  |                                   
|Operating loss                                         |  | $                                  | (3,453 | ) |      | $ | (11,557 | )
|                                                       |  |                                    |        |   |      |   |         |  
|                                                       |  |                                   
|Loss from continuing operations                        |  | $                                  | (3,475 | ) |      | $ | (11,235 | )
|Loss on sale of discontinued operations, net           |  |                                    |       |   |      |   | (903    | )
|                                                       |  |                                    |        |   |      |   |         |  
|                                                       |  |                                   
|Net loss                                               |  | $                                  | (3,475 | ) |      | $ | (12,138 | )
|                                                       |  |                                    |        |   |      |   |         |  

Product Revenue and Gross Profit. Product revenue decreased $3.8 million, or 19%, to
$16.6 million in the first quarter of 2009 from $20.4 million in the first quarter of 2008. The decrease primarily resulted from reduced sales of products in our Detection segment, as discussed below in Detection Segment  Comparison of
the First Quarters Ended March 31, 2009 and 2008. Gross profit as a percentage of product revenue was comparable at 50.6% and 50.3% in the first quarters of 2009 and 2008, respectively.

Contract Research and Development Revenue and Gross Profit. Contract research and development revenue decreased $0.7 million, or 6%, to $11.3
million in the first quarter of 2009 from $12.0 million in the first quarter of 2008. In our Detection segment, contract research and development revenue increased $3.6 million in the first quarter of 2009 compared to the same period last year
primarily due to a significant long-term contract award for the development of a nuclear and chemical reconnaissance system. The increased revenue from Detection was offset by a $4.2 million reduction in contract research and development revenue in
our Surveillance segment in the first quarter of 2009 compared to the same quarter in 2008. The decrease in Surveillance revenue resulted from the delivery of prototype platforms under a contract that ended in 2008. Gross profit as a percentage of
contract research and development revenue was 26.3% and 35.8% in the first quarters of 2009 and 2008, respectively. The reduction in gross profit is primarily due to the mix of contract types and the estimates inherent in the recognition of revenue
and costs under the percentage of completion method.

Service and Other Revenue and Gross Profit.Service and other revenue
increased $16.0 million, or 410%, to $19.9 million in the first quarter of 2009 from $3.9 million in the first quarter of 2008. Service and other revenue in our Solutions segment accounted for approximately $5.3 million of the increase, the majority
of which was related to new project management and integration contracts in connection with intelligent transportation systems and video networking and surveillance. In our Surveillance segment, service and other revenue accounted for approximately
$10.4 million of the revenue increase, the majority of which relates to the delivery of custom platforms. Gross profit as a percentage of service and other revenue was 28.0% and 34.7% in the first quarters of 2009 and 2008, respectively. Gross
profit decreased in the first quarter of 2009 primarily due to the mix of contract types and the estimates inherent in recognizing revenue and costs under the percentage of completion method of accounting.

Operating Loss. Operating loss decreased $8.1 million, or 70%, to $3.5 million in the first quarter of 2009 from $11.6 million in the first
quarter of 2008. The decrease is primarily related to an increase in gross profit dollars of $1.1 million over the comparable quarter and a $7.0 million decrease in operating expenses. The increase is gross profit resulted from revenue growth. The
decrease in operating expenses resulted from reduced spending on internal research and development because more of our technical resources were dedicated to externally funded contract research and development projects, and reduced general and
administrative expenses primarily from reductions in personnel as we continued to make progress towards integrating our business units and eliminating redundancies in our operations. Operating loss excluding depreciation and amortization is a
non-GAAP financial measure that is derived by reducing our operating loss by depreciation and amortization. Amortization primarily represents costs associated with our business acquisitions that do not correspond to an outlay of current and future
cash flow. Accordingly, we believe operating loss excluding depreciation and amortization is a more meaningful measure of our recurring operations and an indicator of our working capital requirements. Operating loss excluding depreciation and
amortization decreased $7.9 million, or 95%, to $0.4 million in the first quarter of 2009 from $8.3 million in the first quarter of 2008 due to increased gross profit and reduced operating expenses as explained earlier in this section.

Loss from Continuing Operations. Our loss from continuing operations decreased $7.7 million, or 69%, to $3.5 million in the first quarter
of 2009 from $11.2 million in the first quarter of 2008 primarily due increased gross profit and reduced operating expenses as explained in the Operating Loss section above.



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Discontinued Operations. In December 2006, we adopted a plan for the sale of three companies,
which were sold in 2007. Those businesses did not align with our overall strategic plans. In the first quarter of 2008 we realized a loss on discontinued operations of $0.9 million related to the settlement of escrow accounts and contingent purchase
consideration.

Net Loss. Net loss decreased $8.6 million, or 71%, to $3.5 million in the first quarter of 2009 from $12.1
million in the first quarter of 2008 primarily due increased gross profit and reduced operating expenses as explained in the Operating Loss section above.

Reportable Segments

We operate our business in three reportable segments: Detection, Surveillance
and Solutions. Our Detection segment develops products and conducts research and development in the areas of chemical, biological, radiation, nuclear and explosives detection. Our Surveillance segment provides products and services for perimeter
security and wide area surveillance. Our Solutions segment integrates our technologies and products to provide single source solutions that address a broad range of customer specific security and surveillance needs.

Detection SegmentComparison of the First Quarters Ended March 31, 2009 and 2008



|                                          |  |                                    |        |   |      |   |        |  
|----------------------------------------- |  | ---------------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Three Months EndedMarch 31,        |       
|                                          |  | 2009                               |        |   | 2008 |  
|                                          |  | (dollars in thousands) (unaudited) |       
|Revenue and gross profit %                |  |                                    |        |   |      |   |        |  
|Product revenue                           |  | $                                  | 9,295  |   |      | $ | 11,634 |  
|Contract research and development revenue |  |                                    | 11,084 |   |      |   | 7,529  |  
|Service and other revenue                 |  |                                    | 819    |   |      |   | 483    |  
|                                          |  |                                    |        |   |      |   |        |  
|Total revenue                             |  | $                                  | 21,198 |   |      | $ | 19,646 |  
|                                          |  |                                    |        |   |      |   |        |  
|                                          |  |                                   
|Gross profit %                            |  |                                    | 40.3   | % |      |   | 49.1   | %
|                                          |  |                                    |        |   |      |   |        |  
|                                          |  |                                   
|Operating loss                            |  | $                                  | (2,740 | ) |      | $ | (5,341 | )
|                                          |  |                                    |        |   |      |   |        |  

Product Revenue. Product revenue decreased $2.3 million, or 20%, to $9.3 million in
the first quarter of 2009 from $11.6 million in the first quarter of 2008. The decrease primarily resulted from fewer sales of our explosive detection products. We sell our detector products primarily to the federal government, from which we have
recently experienced a trend toward higher volume purchases on a less frequent basis. In 2008, purchases of detector products were lower in volume and occurred on a more frequent basis. We believe this trend has caused quarterly variability in our
detection product revenue, and we believe this trend might continue in the future.

Contract Research and Development
Revenue. Contract research and development revenue in the first quarter of 2009 increased $3.6 million, or 48%, to $11.1 million in the first quarter of 2009 from $7.5 million in the first quarter of 2008. The increase is primarily due to
continued progress on the development of a nuclear and chemical reconnaissance system from a significant contract that was awarded to us in the fourth quarter of 2008. We also continue to see increased government spending on defense and security
related programs that are pertinent to our business.

Service and Other Revenue. Service and other revenue in the first quarter
of 2009 increased $0.3 million, or 60%, to $0.8 million in the first quarter of 2009 from $0.5 million in the first quarter of 2008.

Gross Profit. Gross profit as a percentage of revenue decreased from 49.1% in the first quarter of 2008 to 40.3% in the first quarter of 2009 primarily due to a higher percentage of revenue from contract research and development
projects which carry lower gross margins than revenue from product sales.

Operating Loss. Operating loss decreased $2.6
million, or 49%, to $2.7 million in the first quarter of 2009 from $5.3 million in the first quarter of 2008. Operating loss excluding depreciation and amortization was $0.8 million in the first quarter of 2009, a decrease of $2.7 million, or 77%,
from $3.5 million in the first quarter of 2008. A decrease in gross profit of $1.1 million over the comparable quarter was offset by $3.8 million in decreased operating expenses. The decrease in gross profit is due to a higher percentage of revenue
from contract research and development projects which carry lower gross margins than revenue from product sales. The decrease in operating expenses resulted from reduced spending on internal research and development because more of our technical
resources were dedicated to externally funded contract research and development projects, and reduced general and administrative expenses primarily from reductions in personnel as we continued to make progress towards integrating our business units
and eliminating redundancies in our operations.



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Surveillance SegmentComparison of the Three Months Ended March 31, 2009 and 2008



|                                          |  |                                   |        |   |      |   |        |  
|----------------------------------------- |  | --------------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Three Months EndedMarch 31,       |       
|                                          |  | 2009                              |        |   | 2008 |  
|                                          |  | (dollars in thousands)(unaudited) |       
|Revenue and gross profit %                |  |                                   |        |   |      |   |        |  
|Product revenue                           |  | $                                 | 5,112  |   |      | $ | 5,997  |  
|Contract research and development revenue |  |                                   | 198    |   |      |   | 4,442  |  
|Service and other revenue                 |  |                                   | 10,770 |   |      |   | 365    |  
|                                          |  |                                   |        |   |      |   |        |  
|Total revenue                             |  | $                                 | 16,080 |   |      | $ | 10,804 |  
|                                          |  |                                   |        |   |      |   |        |  
|                                          |  |                                  
|Gross profit %                            |  |                                   | 32.7   | % |      |   | 36.4   | %
|                                          |  |                                   |        |   |      |   |        |  
|                                          |  |                                  
|Operating loss                            |  | $                                 | (403   | ) |      | $ | (3,713 | )
|                                          |  |                                   |        |   |      |   |        |  

Product Revenue. Product revenue decreased $0.9 million, or 15%, to $5.1 million in
the first quarter of 2009 from $6.0 million in the first quarter of 2008. The decrease is primarily due to a shift from product sales to the delivery of platforms under custom development contracts.

Contract Research and Development Revenue. Contract research and development revenue decreased $4.2 million, or 95%, to $0.2 million in the
first quarter of 2009 from $4.4 million in the first quarter of 2008 primarily due to the delivery of prototype platforms under a research and development contract that ended in the second quarter of 2008.

Service and Other Revenue. Service and other revenue in the first quarter of 2009 increased $10.4 million, or 2,600%, to $10.8 million in the
first quarter of 2009 from $0.4 million in the first quarter of 2008. The increase resulted from the delivery of platforms under custom development contacts.

Gross Profit. Gross profit as a percentage of revenue was 32.7% and 36.4% in the first quarters of 2009 and 2008, respectively. The decrease in gross profit resulted from a higher percentage of revenue from
custom development projects which carry a lower gross profit than revenue from product sales.

Operating Loss. Operating loss
decreased $3.3 million, or 89%, to $0.4 million in the first quarter of 2009 from $3.7 million in the first quarter of 2008. Operating income excluding depreciation and amortization was $0.3 million in the first quarter of 2009 compared to a loss of
$3.0 million in the first quarter of 2008, an improvement of $3.3 million, or 110%. The improvement resulted from a $1.3 million increase in gross profit from revenue growth, and a $2.0 million decrease in operating expenses primarily from
reductions in personnel as we continued to make progress towards integrating our business units and eliminating redundancies in our operations.



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Solutions SegmentComparison of the Three Months Ended March 31, 2009 and 2008



|                                          |  |                                   |        |   |      |   |        |  
|----------------------------------------- |  | --------------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Three Months EndedMarch 31,       |       
|                                          |  | 2009                              |        |   | 2008 |  
|                                          |  | (dollars in thousands)(unaudited) |       
|Revenue and gross profit %                |  |                                   |        |   |      |   |        |  
|Product revenue                           |  | $                                 | 2,232  |   |      | $ | 2,734  |  
|Contract research and development revenue |  |                                   | 35     |   |      |   | 5      |  
|Service and other revenue                 |  |                                   | 8,388  |   |      |   | 3,065  |  
|                                          |  |                                   |        |   |      |   |        |  
|                                          |  |                                  
|Total revenue                             |  | $                                 | 10,655 |   |      | $ | 5,804  |  
|                                          |  |                                   |        |   |      |   |        |  
|                                          |  |                                  
|Gross profit %                            |  |                                   | 29.4   | % |      |   | 39.7   | %
|                                          |  |                                   |        |   |      |   |        |  
|                                          |  |                                  
|Operating loss                            |  | $                                 | (126   | ) |      | $ | (2,358 | )
|                                          |  |                                   |        |   |      |   |        |  

Product Revenue. Product revenue decreased $0.5 million, or 19%, to $2.2 million in
the first quarter of 2009 from $2.7 million in the first quarter of 2008 primarily due to timing differences in deliveries and delays in awards under the Integrated Commercial Intrusion Detection System (ICIDS) military program.

Service and Other Revenue. Service and other revenue increased $5.3 million, or 171%, to $8.4 million in the first quarter of 2009 from $3.1
million in the first quarter of 2008. The increase was primarily attributable to new contracts for project management and the integration of technologies for intelligent transportation systems.

Gross Profit. Gross profit as a percentage of revenue was 29.4% and 39.7% in the first quarters of 2009 and 2008, respectively. Gross profit
decreased because a greater proportion of our revenue in the first quarter of 2009 was derived from lower margin project management, integration and installation services as compared to the first quarter of 2008 in which a greater proportion of our
revenue was derived from higher margin contract engineering and design services.

Operating Loss. Operating loss decreased $2.3
million, or 96%, to $0.1 million in the first quarter of 2009 from $2.4 million in the first quarter of 2008. Operating income excluding depreciation and amortization was $0.1 million in the first quarter of 2009 compared to a loss of $1.8 million
in the first quarter last year, an increase of $1.9 million, or 106%, which resulted from a $0.8 million increase in gross profit from revenue growth, and a $1.1 million decrease in operating expenses primarily from reductions in personnel as we
continued to make progress towards integrating our business units and eliminating redundancies in our operations.

Reconciliation of
Reportable Segment Operating Losses to the Consolidated Loss from Continuing Operations

The following tables provides a reconciliation
of operating losses from reportable segments to our consolidated net loss from continuing operations for the three months ended March 31, 2009 and 2008:



|                                                                                           |  |                                   |        |   |      |   |         |  
|------------------------------------------------------------------------------------------ |  | --------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                           |  | Three Months EndedMarch 31,       |       
|                                                                                           |  | 2009                              |        |   | 2008 |  
|                                                                                           |  | (dollars in thousands)(unaudited) |       
|Reconciliation of segment operating losses to consolidated loss from continuing operations |  |                                   |        |   |      |   |         |  
|Segment operating losses                                                                   |  | $                                 | (3,268 | ) |      | $ | (11,412 | )
|Unallocated depreciation and amortization expenses                                         |  |                                   | (184   | ) |      |   | (145    | )
|Interest expense                                                                           |  |                                   | (17    | ) |      |   | (18     | )
|Interest income                                                                            |  |                                   | 51     |   |      |   | 430     |  
|Other nonoperating gains (losses), net                                                     |  |                                   | 56     |   |      |   | (122    | )
|Income tax (expense) benefit                                                               |  |                                   | (113   | ) |      |   | 32      |  
|                                                                                           |  |                                   |        |   |      |   |         |  
|                                                                                           |  |                                  
|Consolidated loss from continuing operations                                               |  | $                                 | (3,475 | ) |      | $ | (11,235 | )
|                                                                                           |  |                                   |        |   |      |   |         |  

Liquidity and Capital Resources

As of March 31, 2009, our principal sources of liquidity were cash and cash equivalents of $35.3 million and accounts receivable of $27.9 million. We
typically experience net cash outflows from operating activities and cash inflows from investing or financing activities. We expect our cash flows from operating activities to improve as we continue to reduce our net losses through a variety of
means, including but not limited to reducing general and administrative expenses by streamlining our operations, prioritizing internal research and development spending and increasing revenue through organic growth. At March 31, 2009, we had
firm backlog of approximately $85 million and unfunded backlog of approximately $347 million. At March 31, 2008, we had firm backlog of approximately $46 million and unfunded backlog of approximately $214 million. We believe our backlog and
recent bookings combined with operating expense reductions will be sufficient to sustain our liquidity and cash flows in 2009 and for the foreseeable future.

Our primary sources of cash historically have been our initial public offering in November 2007, customer payments for our products and services, lines of credit and short term loans and proceeds from the sale of
businesses. We were incorporated in 2003 and have primarily grown our business organically and through a series of complementary acquisitions in 2005. Many of the acquired businesses have early stage products and/or emerging products and engage in
research and development activities that are funded both through external government contracts and internal resources.



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During 2007 and into 2008, we increased our investment in sales, marketing and other related business
development structures to support our early stage products and emerging technologies. Additionally, we increased our investment in internally funded research and development activities and the integration of products and technologies among our
operating units. We also increased our general and administrative expenses in 2008 and 2007 through the use of consultants and other professionals to complete certain accounting and legal functions. Consequently, our cumulative net losses, which
amounted to approximately $208.0 million at March 31, 2009, were expected based on the nature of our business, the early stage of our products and technologies and our ongoing research and development activities.

In the future we may enter into acquisition agreements for complementary businesses that would require us to seek additional equity or debt financing.
Additional funds may not be available on terms favorable to us or at all.



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The following table shows our cash and cash equivalents and working capital as of March 31, 2009 and
December 31, 2008:



|                          |  |                        |        |                        |   |       
|------------------------- |  | ---------------------- | ------ | ---------------------- | - | ------
|                          |  | As of March 31,2009    |        | As of December 31,2008
|                          |  | (dollars in thousands)
|                          |  | (unaudited)            |        |                       
|Cash and cash equivalents |  | $                      | 35,298 |                        | $ | 38,782
|Working capital           |  |                        | 75,455 |                        |   | 76,745

The following table shows our cash flows from operating, investing and financing activities for
the three months ended March 31, 2009 and 2008.



|                                                      |  |                                   |        |   |      |   |         |  
|----------------------------------------------------- |  | --------------------------------- | ------ | - | ---- | - | ------- | -
|                                                      |  | Three Months EndedMarch 31,       |       
|                                                      |  | 2009                              |        |   | 2008 |  
|                                                      |  | (dollars in thousands)(unaudited) |       
|Summary of cash flow:                                 |  |                                   |        |   |      |   |         |  
|Cash flows used in operating activities               |  | $                                 | (5,110 | ) |      | $ | (9,439  | )
|Cash flows used in investing activities               |  |                                   | (665   | ) |      |   | (988    | )
|Cash flows provided by (used in) financing activities |  |                                   | 2,065  |   |      |   | (286    | )
|Effect of foreign exchange rate on cash               |  |                                   | 226    |   |      |   | 45      |  
|                                                      |  |                                   |        |   |      |   |         |  
|                                                      |  |                                  
|Consolidated net change in cash and cash equivalents  |  | $                                 | (3,484 | ) |      | $ | (10,668 | )
|                                                      |  |                                   |        |   |      |   |         |  

Cash Flows from Operating Activities. Our cash flows from operating activities are
significantly influenced by spending required to support the growth of our business in areas such as research and development, sales and marketing, facilities expansion and certain general and administrative costs. Our operating cash flows are
also influenced by our working capital needs to support growth and fluctuations in inventory, accounts receivable, accounts payable and other current assets and liabilities. The concentration of business with the U.S. government also impacts
operating cash flow, particularly for fixed price contracts in which revenue recognition under the percentage of completion method may not coincide with billing. Cash flows used in operating activities decreased $4.3 million, or 46%, to $5.1 million
for the first quarter of 2009 from $9.4 million in the first quarter of 2008 primarily due to a net decrease in operating assets and liabilities of $5.8 million. We expect our cash flows from operating activities to improve as we continue to reduce
our net losses through a variety of means, including but not limited to reducing general and administrative expenses by streamlining our operations and reducing sales and marketing costs by scaling back our plans to expand commercial sales channels.
Additionally, we are shifting the utilization of our technical resources from internal research and development to externally funded research and development contracts.

Cash Flows from Investing Activities. Cash flows from investing activities primarily relate to business acquisitions and dispositions and capital expenditures. In the first quarter of 2009, cash flows used
in investing activities included $0.7 million of capital expenditures. In the first quarter of 2008, cash flows from investing activities included $1.4 million of capital expenditures offset by $0.4 million of cash proceeds released from escrow
related to the sale of a company in 2007. Capital expenditures for the first quarters of 2009 and 2008 primarily pertain to the expansion of facilities and the acquisition of computer equipment and manufacturing and lab equipment. Capital
expenditures also included costs associated with the implementation of an enterprise software system throughout the company.

Cash Flows
from Financing Activities. Net debt issuances (repayments), in the first quarters of 2009 and 2008 were $2.4 million and ($0.3) million, respectively.



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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make assumptions and prepare estimates that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities and revenues and expenses. We base our estimates on historical experience and various other assumptions that we believe are reasonable; however, actual results may differ. See
note 1 to our consolidated financial statements contained elsewhere in this report for a discussion of our significant accounting policies.

Revenue Recognition  Products. A significant portion of our revenue is derived from the sale of our products. We recognize revenue from product sales at the time the product is shipped, title and risk have passed to
the customer and collection from the customer is reasonably assured.

Revenue Recognition  Contract Research and
Development and Services. We follow the guidelines of American Institute of Certified Public Accountants (AICPA) Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts , for
our contract research and development and contract service revenue. We account for sales and earnings under long-term contracts using the percentage-of-completion method of accounting. Under the percentage-of-completion method, we recognize revenue
as the work progresseseither as the products are produced and delivered or as services are rendered, as applicable. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that
profit over the remaining life of the contract based on either input (e.g., costs incurred) or output (e.g., units delivered) measures, as appropriate. If a revised estimate of contract profitability reveals an anticipated loss on the contract, we
recognize the loss in the period it is identified.

The percentage-of-completion method of accounting involves the use of various
estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes in specifications. Contract estimates involve various assumptions and projections relative to the
outcome of future events over a period of several months or years, including future labor productivity and availability, the nature and complexity of the work to be performed, the cost and availability of materials, the impact of delayed
performance, the availability and timing of funding from the customer and the timing of product deliveries. These estimates are based on our best judgment. A significant change in one or more of these estimates could affect the profitability of one
or more of our contracts. We principally use hours of work and contract milestones to measure the progress of contract completeness. Certain contracts provide for billings and/or payments that may not coincide with revenue recognition. To the extent
that customer billings or payments are in excess of revenues, we record the excess as deferred revenue. To the extent that we recognize revenue under the percentage of completion method prior to billings as defined in the contracts, we record such
amounts as unbilled revenue, and we expect them to be collected within one year of recognition. Substantially all of the unbilled revenue is due from various agencies of the U.S. government.

We review our contract estimates monthly to assess revisions in contract values and estimated costs at completion and reflect changes in estimates in the
current and future periods under the reallocation method.

Revenue Recognition  Service and Other. Service and
other revenue is primarily derived from custom product design and development services, sales of custom designed products and project management and technology integration services using the percentage of completion method described above. We
recognize revenue from product training and installation services when the services are provided. We generally recognize revenue for software maintenance and extended warranty contracts on a straight-line basis over the life of the contract. We
recognize software revenue under the provisions of the Accounting Standards Executive Committees Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition (as amended by SOP 98-9). Under the terms of SOPs 97-2 and 98-9,
companies are required to defer all revenue from multiple-element software arrangements if sufficient vendor specific objective evidence does not exist for the allocation of revenue to the various elements of the arrangement. As a result, we
recognize any revenue on multi-year software license agreements ratably over the life of the arrangement.

Goodwill and Identifiable
Intangible Assets. In accordance with SFAS No. 141, Business Combinations (SFAS 141), we allocate the cost of business acquisitions to the assets acquired and liabilities assumed based on their estimated fair values at the date of
acquisition (commonly referred to as the purchase price allocation). As part of the purchase price allocations for our business acquisitions, identifiable intangible assets are recognized as assets apart from goodwill if they arise from



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contractual or other legal rights, or if they are capable of being separated or divided from the acquired business and sold, transferred, licensed, rented or
exchanged. However, in accordance with SFAS 141, we do not recognize any intangible assets apart from goodwill for the assembled workforces of our business acquisitions.

A significant component of the businesses we have acquired historically is the presence of advanced security products and technologies that the business
has developed. The most significant identifiable intangible asset that we have separately recognized in accordance with SFAS 141 is core technologies. Our intellectual property and proprietary rights for these core technologies are typically
protected through a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements. The fair value for core technologies is determined, as of the date of acquisition, using the
Relief from Royalty Method, an approach commonly used in valuing intangible assets. The basic tenet of the Relief from Royalty Method is that without ownership of the subject intangible asset, the user of that intangible
asset would have to make a stream of payments to the owner of the asset in return for the rights to use that asset. By acquiring the intangible asset, the user avoids these payments. The valuation of the core technologies takes into consideration
the percentage of forecasted revenues directly attributable to the underlying core/developed technologies. The royalty rate was selected based on consideration of several factors including external research, industry practices and margin
considerations. Also factoring into the valuations of core technologies are the estimated technological useful lives of the products that use the technologies and the present value of future cash flows. The discount rates used to determine the
present value of future cash flows is based on consideration of the weighted average cost of capital and internal rates of return as well as the risk and return characteristics of the core technologies.

Customer contractual relationships also constitute a significant portion of identifiable intangible assets recognized in accordance with SFAS 141. All of
our contractual relationships are established through written customer contracts (revenue arrangements). The fair value for customer contractual relationships is determined, as of the date of acquisition, based on estimates and judgments regarding
expectations for the estimated future after-tax earnings and cash flows (including cash flows from working capital) arising from the follow-on sales on contract (revenue arrangement) renewals expected from customer contractual relationships over
their estimated lives, including the probability of expected future contract renewals and sales, less a contributory asset charge, all of which is discounted to present value.

The value assigned to goodwill equals the amount of the purchase price of the business acquired in excess of the sum of the amounts assigned to
identifiable acquired assets, both tangible and intangible, less liabilities assumed. At March 31, 2009, we had goodwill of $70.8 million and identifiable intangible assets, net of accumulated amortization, of $16.5 million.

Intangible assets are amortized over their respective estimated useful lives ranging from one to ten years. The useful life of an
intangible asset is the period over which the asset is expected to contribute directly or indirectly to our future cash flows rather than the period of time that it would take us to internally develop an intangible asset that would provide similar
benefits. The estimate of the useful lives of our intangible asset is based on an analysis of all pertinent factors, in particular:



| |  |  | the expected use of the asset by the entity;
| | - |  | --------------------------------------------



| |  |  | the expected useful life of another asset or group of assets to which the useful life of the intangible asset may relate;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | any legal, regulatory or contractual provisions that may limit the useful life;
| | - |  | -------------------------------------------------------------------------------



| |  |  | any legal, regulatory, or contractual provisions that enable renewal or extension of the assets legal or contractual life without substantial cost (provided
there is evidence to support renewal or extension and renewal or extension can be accomplished without material modifications of the existing terms and conditions);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effects of obsolescence, demand, competition and other economic factors (such as the stability of the industry, known technological advances, legislative action
that results in an uncertain or changing regulatory environment, and expected changes in distribution channels); and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the level of regular maintenance expenditures (but not enhancements) required to obtain the expected future cash flows from the asset (for example, a material level
of required maintenance in relation to the carrying amount of the asset may suggest a limited useful life).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If no legal,
regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset, the useful life of the asset is considered to be indefinite. The term indefinite does not mean infinite. An intangible asset with a finite
useful life is amortized over that useful life; an intangible asset with an indefinite useful life is not amortized. We have no intangible assets with indefinite useful lives. Under U.S. generally accepted accounting principles (GAAP), goodwill is
not amortized.



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We review goodwill and intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable, and also review goodwill annually in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires that goodwill be tested, at a
minimum, annually for each reporting unit using a two-step process. A reporting unit is an operating segment, as defined in paragraph 10 of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information , or a
component of an operating segment. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and is reviewed. Two or more components of an operating segment
may be aggregated and deemed a single reporting unit for goodwill impairment testing purposes if the components have similar economic characteristics. The first step is to identify any potential impairment by comparing the carrying value of the
reporting unit to its fair value. If a potential impairment is identified, the second step is to measure the impairment loss by comparing the implied fair value of goodwill with the carrying value of goodwill of the reporting unit. The fair value of
a reporting unit is estimated using a discounted cash flow valuation approach and is dependent on estimates for future sales, operating income, depreciation and amortization, income tax payments, working capital changes and capital expenditures as
well as expected growth rates for cash flows and long-term interest rates, all of which are affected by economic conditions related to the industries in which we operate as well as conditions in the U.S. capital markets.

The most significant assumptions used in a discounted cash flow valuation regarding the estimated fair values of our reporting units in connection with
goodwill valuation assessments are:



| |  |  | detailed long-range (approximating 10 years) cash flow projections for each of our reporting units;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | a risk adjusted discount rate including the estimated risk-free rate of return; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the expected long-term growth rate of our business, which approximates the expected long-term growth rate for the U.S. economy and the industries in which we
operate.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

The risk adjusted discount rate represents the estimated weighted average cost of capital. The weighted average
cost of capital focuses on rates of return for equity and debt, and a corresponding capital structure.

A decline in the estimated fair
value of a reporting unit could result in a goodwill impairment and a related non-cash impairment charge against earnings, if estimated fair value for the reporting unit is less than the carrying value of the net assets of the reporting unit,
including its goodwill. There was no goodwill impairment charge for the quarters ended March 31, 2009 and 2008.

Stock-based
Compensation. We account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) requires equity-classified, share-based payments to employees, including grants of
employee stock options, to be valued at fair value on the date of grant and to be expensed over the applicable vesting period. Under SFAS 123(R), share-based awards granted or modified are recognized in compensation expense over the applicable
vesting period. We recognize this expense on a straight-line basis over the options expected terms.

During the first quarter of
2008, we granted 62,000 stock options. No stock options were granted in the first quarter of 2009. During the first quarter of 2009 and 2008, we granted 72,837 and 478,667 shares, respectively, of restricted stock and restricted stock units pursuant
to the 2007 Equity Incentive Plan. Grants of restricted stock and restricted stock units are valued using the closing market price of our common stock on the date of grant.

We estimate the grant date fair value of stock option awards under the provisions of SFAS 123(R) using the Black-Scholes option valuation model, which
requires, among other inputs, an estimate of the fair value of the underlying common stock on the date of grant and the expected term of the options. Separate values were determined for options having exercise prices ranging from $7.00 to $16.00. We
applied the resulting fair values for one share of common stock as of each of the valuation dates to our Black-Scholes option valuation model to arrive at the fair value of the related options granted during the valuation period.

For the three months ended March 31, 2009 and 2008, we recognized stock-based compensation expense of $1.0 million and $1.7 million,
respectively. In future periods, stock-based compensation expense may increase as we issue additional equity-based awards to continue to attract and retain key employees. Additionally, SFAS 123(R) requires that we recognize compensation expense only
for the portion of stock options that are expected to vest.



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As of March 31, 2009, our total unrecognized compensation expense related to stock-based awards
granted to employees and non-employee directors was approximately $3.9 million.

Income Taxes. We use an asset and liability
approach for accounting for income taxes. Deferred income taxes are recognized for the tax consequences of temporary differences and carryforwards by applying enacted tax rates applicable to future years to differences between the financial
statement amounts and the tax bases of existing assets and liabilities. We establish a valuation allowance if it is probable that some portion of the deferred tax asset will not be realized. Our determination of whether a valuation allowance is
appropriate requires the exercise of judgment. At March 31, 2009, we had net operating loss carryforwards available for U.S. federal and state income taxes of $108.3 million which begin to expire in 2017. The net operating loss
carryforwards that we acquired in connection with our business acquisitions may also be limited by provision of the Internal Revenue Code regarding changes in ownership. We have provided a valuation allowance against net U.S. deferred tax assets and
operating loss carryforwards in certain non-U.S. jurisdictions. We have recorded a valuation allowance because of the emerging nature of our business and our history of losses. We will continue to evaluate income generated in future periods in
determining the reasonableness of our position. If we determine that future income is sufficient or insufficient to cause the realization of the net operating loss carryforwards within the required time, the valuation allowance will be adjusted as
necessary.

Liabilities for Pending and Threatened Litigation. We are subject to litigation, investigations, proceedings,
claims or assessments and various contingent liabilities incidental to our business or assumed in connection with certain business acquisitions. In accordance with SFAS No. 5, Accounting for Contingencies, we accrue a charge for a loss
contingency when we believe it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If the loss is within a range of specified amounts, the most likely amount is accrued, and if no amount within
the range represents a better estimate we accrue the minimum amount in the range. Generally, we record the loss contingency at the amount we expect to pay to resolve the contingency and the amount is generally not discounted to the present value.
Amounts recoverable under insurance contracts are recorded as assets when recovery is deemed probable. Contingencies that might result in a gain are not recognized until realized. Changes to the amount of the estimated loss, or resolution of one or
more contingencies could have a material impact on our results of operations, financial position and cash flows.

Recent Accounting
Pronouncements

For a discussion of recent accounting pronouncements refer to Note 1 of the Notes to the Consolidated Financial
Statements in Item 1  Financial Statements.

Off-Balance Sheet Arrangements

As of March 31, 2009 and 2008, we did not have any off-balance sheet arrangements.



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|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Foreign Currency Risk. Our international businesses generate revenue and incur expenses that are denominated in foreign currencies. Historically, our foreign currency translation adjustments have not been material to our
financial position or consolidated results of operations. However, changes in economic conditions impacting foreign currency exchange rates could materially increase our exposure to foreign currency fluctuations and adversely affect our consolidated
results of operations or financial position, specifically with changes in the United States dollar relative to the Canadian dollar and the European Euro. Our Canadian and German subsidiaries are consolidated into our financial results and under U.S.
GAAP, we are required to translate the financial condition and results of operations of these subsidiaries into United States dollars, with any corresponding translation gains or losses being recorded in other comprehensive income in our
consolidated financial statements. For the three months ended March 31, 2009 and 2008, this translation adjustment, net of tax, was a loss of $0.8 million and a gain of $0.6 million, respectively. We also maintain cash balances denominated in
foreign currencies. At March 31, 2009, we had $3.3 million of cash in foreign accounts. We have not hedged our exposure to changes in foreign currency rates and, as a result, could incur unanticipated translation gains and losses.

Interest Rate Risk. We had cash and cash equivalents of $35.3 million at March 31, 2009. We do not enter into investments for
trading or speculative purposes. We do not believe that we have any material exposure to changes in the fair value of these investments as a result of changes in interest rates. Declines in interest rates, however, will reduce future income.

At March 31, 2009, we had an open line of credit which bears interest at a variable rate adjusted based on the prime rate, under
which we may borrow a maximum of $2.5 million. At March 31, 2009, $2.4 million was outstanding under this line of credit. Based on the amount outstanding and the maximum amount available for borrowing, we do not believe that changes in interest
rates create material exposure to our business. Increases in interest rates, however, will increase future interest expense.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

As of March 31, 2009, we completed our evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management as appropriate to allow for timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the first fiscal quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

From time to time, we are
involved in various routine legal proceedings. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have
a material adverse effect on our business, financial condition and results of operations.



|Item 1A. | Risk Factors
|-------- | ------------

Except as indicated below, there have
been no material changes in information to the Risk Factors previously described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent economic developments may adversely affect our business, financial condition and results of operations

Current uncertainty in global economic conditions poses a risk to the overall economy and could result in changes in the priorities and timing of spending by our government and commercial customers that are difficult
to anticipate. If demand for our products and services decreases due to such changing priorities, we may be required to record an impairment on our long-lived assets, which are primarily comprised of intangible assets, which would increase our
expenses. Changes in demand for our products and changes in our customers product needs could have a variety of negative effects on our competitive position and our financial results and, in certain cases, may reduce our revenue, increase our
costs, lower our gross margin percentage, or require us to recognize impairments of our assets. Furthermore, a significant, sustained decline in our stock price and market capitalization may result in impairment of certain of our intangible assets,
including goodwill, and a significant charge to earnings in our financial statements during the period in which an impairment is determined to exist. Despite the fact that our market cap is currently lower than our book value, we do not believe this
would require us to perform an interim or event-driven impairment analysis based on the duration and depth of the market decline. Due to the ongoing uncertainty in market conditions, which may continue to negatively impact our market capitalization,
we will continue to monitor and evaluate the carrying value of our goodwill. In the event we are required to reduce the carrying value of our goodwill, any such impairment charge could materially reduce our results of operations.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Issuer Purchases of Equity Securities

During the period January 1, 2009 to March 31, 2009, we purchased the
following shares:



|              |  |                                |     |  |                            |      |                                                                              |     |                                                                             |    
|------------- |  | ------------------------------ | --- |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | --- | --------------------------------------------------------------------------- | ---
|Period        |  | Total Numberof SharesPurchased |     |  | Average PricePaid perShare |      | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |     | Maximum Number ofShares that May YetBe Purchased Underthe Plans or Programs
|January 1-31  |  | 3,845                          | (1) |  | $                          | 6.72 |                                                                              | N/A |                                                                             | N/A
|February 1-29 |  | 3,699                          | (1) |  | $                          | 5.38 |                                                                              | N/A |                                                                             | N/A
|March 1-31    |  | 67,382                         | (1) |  | $                          | 4.53 |                                                                              | N/A |                                                                             | N/A



|(1) | As part of our restricted stock plan, we offer employees the opportunity to make required tax payments with cash or through a net share settlement. For employees choosing net share
settlement, we make required tax payments on behalf of employees as their stock awards vest and then withhold a number of vested shares having a value on the date of vesting equal to the tax obligation. The shares withheld were recorded as treasury
shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None



|Item 5. | Other Information
|------- | -----------------

None



|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                             
|     | 
|31.2 |  | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                             
|     | 
|32.1 |  | Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**



|* | Filed herewith
|- | --------------

|** | Furnished herewith
|-- | ------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: May 15, 2009



ICX TECHNOLOGIES, INC.By:

/ S / COLIN J. CUMMINGColin J. CummingChief Executive Officer and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                          |  |  |  |                                                                      |  |  |  |             
|----------------------------------------- |  |  |  | -------------------------------------------------------------------- |  |  |  | ------------
|Signature                                 |  |  |  | Title                                                                |  |  |  | Date        
|                                          |  |  |  |                                                                     
|/ S / COLIN J. CUMMING Colin J. Cumming   |  |  |  | Chief Executive Officer and Director (Principal
Executive Officer)   |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|/ S / DEBORAH D. MOSIER Deborah D. Mosier |  |  |  | Chief Financial Officer (Principal Financial and Accounting Officer) |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|* Hans C. Kobler                          |  |  |  | Executive Chairman of the Board                                      |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|* E. Spencer Abraham                      |  |  |  | Director                                                             |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|* Joseph M. Jacobs                        |  |  |  | Director                                                             |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|* Robert A. Maginn, Jr.                   |  |  |  | Director                                                             |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|* Mark L. Plaumann                        |  |  |  | Director                                                             |  |  |  | May 15, 2009
|                                          |  |  |  |                                                                     
|* Rodney E. Slater                        |  |  |  | Director                                                             |  |  |  | May 15, 2009



|      |  |                       
|----- |  | ----------------------
|* By: |  | / S / DANIEL T. MONGAN
|      |  | Daniel T. Mongan      
|      |  | Attorney-In-Fact      



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INDEX TO EXHIBITS



|               |  |                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Title                                                                                                                     
|31.1           |  | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|               | 
|31.2           |  | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|               | 
|32.1           |  | Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



32