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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, 2010

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   |  |  ̈ |  | Smaller reporting company |  | x

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, 2010, the registrant had 34,892,523 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, 2010

INDEX



|                                                                                              |  |                                                                                                                             |  |  
|--------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | -
|PART I. FINANCIAL INFORMATION                                                                 |  |                                                                                                                            
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  |                                                                                                                            
|                                                                                              |  |                                                                                                                            
|                                                                                              |  | Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009 (audited)                                |  | 3
|                                                                                              |  |                                                                                                                            
|                                                                                              |  | Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2010 and 2009 (unaudited) |  | 4
|                                                                                              |  |                                                                                                                            
|                                                                                              |  | Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2010 (unaudited)                        |  | 5
|                                                                                              |  |                                                                                                                            
|                                                                                              |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (unaudited)                        |  | 6
|                                                                                              |  |                                                                                                                            
|                                                                                              |  | Notes to Consolidated Financial Statements (unaudited)                                                                      |  | 7
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15                                                                                                                         
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 26                                                                                                                         
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 26                                                                                                                         
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |                                                                                                                            
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  | 26                                                                                                                         
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 26                                                                                                                         
|                                                                                              | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 27                                                                                                                         
|                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                       |  | 27                                                                                                                         
|                                                                                              | 
|Item 4. (Removed and Reserved)                                                                |  | 27                                                                                                                         
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 27                                                                                                                         
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 27                                                                                                                         
|                                                                                              | 
|Signatures                                                                                    |  | 28                                                                                                                         
|                                                                                              | 
|Index to Exhibits                                                                             |  | 29                                                                                                                         



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 31,2010 |              |   | December 31,2009 |  
|Assets                                                                                                                                                                                                                                                                                                                          |  |                        |              |   |                  |   |              |  
|Current assets:                                                                                                                                                                                                                                                                                                                 |  |                        |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                                       |  | $                      | 28,122,821   |   |                  | $ | 22,270,262   |  
|Restricted cash                                                                                                                                                                                                                                                                                                                 |  |                        | 8,472,890    |   |                  |   | 8,464,545    |  
|Trade accounts receivable, net                                                                                                                                                                                                                                                                                                  |  |                        | 28,151,114   |   |                  |   | 36,751,209   |  
|Unbilled revenue                                                                                                                                                                                                                                                                                                                |  |                        | 10,789,028   |   |                  |   | 8,957,090    |  
|Inventories                                                                                                                                                                                                                                                                                                                     |  |                        | 23,764,332   |   |                  |   | 22,490,819   |  
|Deferred income taxes                                                                                                                                                                                                                                                                                                           |  |                        | 353,942      |   |                  |   | 346,721      |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                       |  |                        | 3,396,169    |   |                  |   | 4,205,956    |  
|Current assets of discontinued operations                                                                                                                                                                                                                                                                                       |  |                        | 1,174,817    |   |                  |   | 1,051,997    |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Total current assets                                                                                                                                                                                                                                                                                                            |  |                        | 104,225,113  |   |                  |   | 104,538,599  |  
|Property, plant and equipment, net                                                                                                                                                                                                                                                                                              |  |                        | 9,195,402    |   |                  |   | 9,672,581    |  
|Intangible assets, net                                                                                                                                                                                                                                                                                                          |  |                        | 8,703,147    |   |                  |   | 9,901,567    |  
|Goodwill                                                                                                                                                                                                                                                                                                                        |  |                        | 70,338,494   |   |                  |   | 70,274,490   |  
|Other assets                                                                                                                                                                                                                                                                                                                    |  |                        | 3,787,903    |   |                  |   | 3,671,016    |  
|Noncurrent assets of discontinued operations                                                                                                                                                                                                                                                                                    |  |                        | 238,036      |   |                  |   | 365,639      |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Total assets                                                                                                                                                                                                                                                                                                                    |  | $                      | 196,488,095  |   |                  | $ | 198,423,892  |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|Liabilities and Stockholders Equity                                                                                                                                                                                                                                                                                            |  |                        |              |   |                  |   |              |  
|Current liabilities:                                                                                                                                                                                                                                                                                                            |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Current portion of long-term debt                                                                                                                                                                                                                                                                                               |  | $                      | 64,046       |   |                  | $ | 63,233       |  
|Accounts payable                                                                                                                                                                                                                                                                                                                |  |                        | 6,041,320    |   |                  |   | 6,609,983    |  
|Accrued payroll expenses                                                                                                                                                                                                                                                                                                        |  |                        | 5,965,321    |   |                  |   | 8,469,733    |  
|Accrued expenses and other current liabilities                                                                                                                                                                                                                                                                                  |  |                        | 7,106,437    |   |                  |   | 6,106,986    |  
|Deferred revenue                                                                                                                                                                                                                                                                                                                |  |                        | 5,739,571    |   |                  |   | 4,943,348    |  
|Current liabilities of discontinued operations                                                                                                                                                                                                                                                                                  |  |                        | 294,203      |   |                  |   | 827,954      |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Total current liabilities                                                                                                                                                                                                                                                                                                       |  |                        | 25,210,898   |   |                  |   | 27,021,237   |  
|Long-term debt                                                                                                                                                                                                                                                                                                                  |  |                        | 101,626      |   |                  |   | 117,935      |  
|Deferred income taxes                                                                                                                                                                                                                                                                                                           |  |                        | 438,034      |   |                  |   | 464,890      |  
|Other liabilities                                                                                                                                                                                                                                                                                                               |  |                        | 354,183      |   |                  |   | 383,318      |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Total liabilities                                                                                                                                                                                                                                                                                                               |  |                        | 26,104,741   |   |                  |   | 27,987,380   |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Commitments and Contingencies                                                                                                                                                                                                                                                                                                   |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Series A Convertible Redeemable Preferred Stock, par value $.001 per shareauthorized 15,000,000 in 2010 and 2009; issued
and outstanding 0 shares in 2010 and 2009; liquidation preference $0 at March 31, 2010 and December 2009, respectively                                                                                |  |                        |             |   |                  |   |             |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|                                                                                                                                                                                                                                                                                                                                |  |                       
|Stockholders Equity:                                                                                                                                                                                                                                                                                                           |  |                        |              |   |                  |   |              |  
|Common stock, par value $.001 per share, authorized 250,000,000 shares at March 31, 2010 and December 31, 2009,
respectively; issued 35,302,281 and 34,915,021 shares at March 31, 2010 and December 31, 2009, respectively; outstanding 34,886,484 and 34,551,357 shares at March 31, 2010 and December 31, 2009, respectively |  |                        | 35,303       |   |                  |   | 34,915       |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                                      |  |                        | 387,140,716  |   |                  |   | 385,552,404  |  
|Treasury stock, at cost; 415,797 and 363,664 shares at March 31, 2010 and December 31, 2009,
respectively                                                                                                                                                                                                                       |  |                        | (3,192,571   | ) |                  |   | (2,815,743   | )
|Accumulated deficit                                                                                                                                                                                                                                                                                                             |  |                        | (216,124,346 | ) |                  |   | (215,131,852 | )
|Accumulated other comprehensive income                                                                                                                                                                                                                                                                                          |  |                        | 2,524,252    |   |                  |   | 2,796,788    |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                                                                                                                                                                                                      |  |                        | 170,383,354  |   |                  |   | 170,436,512  |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                                                                      |  | $                      | 196,488,095  |   |                  | $ | 198,423,892  |  
|                                                                                                                                                                                                                                                                                                                                |  |                        |              |   |                  |   |              |  

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



|                                                      |  |                              |            |   |      |   |            |  
|----------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                      |  | Unaudited                    |           
|                                                      |  | Three Months Ended March 31, |           
|                                                      |  | 2010                         |            |   | 2009 |  
|Revenues:                                             |  |                              |            |   |      |   |            |  
|Product revenues                                      |  | $                            | 21,714,653 |   |      | $ | 16,321,025 |  
|Contract research and development revenues            |  |                              | 12,161,384 |   |      |   | 11,282,255 |  
|Service and other revenues                            |  |                              | 6,693,789  |   |      |   | 19,787,689 |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Total revenues                                        |  |                              | 40,569,826 |   |      |   | 47,390,969 |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Cost of revenues:                                     |  |                              |            |   |      |   |            |  
|Cost of product revenues                              |  |                              | 8,365,715  |   |      |   | 8,099,636  |  
|Cost of contract research and development revenues    |  |                              | 8,952,102  |   |      |   | 8,314,119  |  
|Cost of service and other revenues                    |  |                              | 4,820,975  |   |      |   | 14,194,389 |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Total cost of revenue                                 |  |                              | 22,138,792 |   |      |   | 30,608,144 |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Gross profit                                          |  |                              | 18,431,034 |   |      |   | 16,782,825 |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Operating expenses:                                   |  |                              |            |   |      |   |            |  
|General and administrative                            |  |                              | 7,040,342  |   |      |   | 7,189,219  |  
|Sales and marketing                                   |  |                              | 6,308,630  |   |      |   | 6,354,179  |  
|Research and development                              |  |                              | 3,759,968  |   |      |   | 3,515,737  |  
|Depreciation and amortization                         |  |                              | 1,952,425  |   |      |   | 3,023,045  |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Total operating expenses                              |  |                              | 19,061,365 |   |      |   | 20,082,180 |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Operating loss                                        |  |                              | (630,331   | ) |      |   | (3,299,355 | )
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Other income (expense):                               |  |                              |            |   |      |   |            |  
|Interest income                                       |  |                              | 11,775     |   |      |   | 51,853     |  
|Interest expense                                      |  |                              | (27,434    | ) |      |   | (17,279    | )
|Other, net                                            |  |                              | 247,207    |   |      |   | 56,495     |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Total other income                                    |  |                              | 231,548    |   |      |   | 91,069     |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Loss before income taxes                              |  |                              | (398,783   | ) |      |   | (3,208,286 | )
|Income tax expense                                    |  |                              | 280,251    |   |      |   | 113,289    |  
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Loss from continuing operations                       |  | $                            | (679,034   | ) |      | $ | (3,321,575 | )
|Loss on discontinued operations, net of tax           |  |                              | (313,460   | ) |      |   | (153,501   | )
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Net loss                                              |  | $                            | (992,494   | ) |      | $ | (3,475,076 | )
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Other comprehensive income                            |  |                              |            |   |      |   |            |  
|Foreign currency translation adjustment, net of tax   |  |                              | (272,536   | ) |      |   | (778,984   | )
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Comprehensive loss                                    |  | $                            | (1,265,030 | ) |      | $ | (4,254,060 | )
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Net loss per common share                             |  |                              |            |   |      |   |            |  
|Basic and diluted                                     |  | $                            | (0.03      | ) |      | $ | (0.10      | )
|                                                      |  |                              |            |   |      |   |            |  
|                                                      |  |                             
|Basic and diluted weighted average shares outstanding |  |                              | 35,131,153 |   |      |   | 34,488,639 |  
|                                                      |  |                              |            |   |      |   |            |  

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, 2010                  |  | 34,915,021           |  | $                         | 34,915 |                    | $ | 385,552,404 |                                     | $ | (215,131,852 | )             |  | $ | 2,796,788                |   |  | $ | (2,815,743 | ) |  | $ | 170,436,512 |  
|Comprehensive income (loss):                 |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|Net loss                                     |  |                     |  |                           |       |                    |   |            |                                     |   | (992,494     | )             |  |   |                         |   |  |   |           |   |  |   | (992,494    | )
|Foreign currency translation, net of tax     |  |                     |  |                           |       |                    |   |            |                                     |   |             |               |  |   | (272,536                 | ) |  |   |           |   |  |   | (272,536    | )
|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|                                             |  |                      |  |                           |        |                    |  
|Total comprehensive loss                     |  |                     |  |                           |       |                    |   |            |                                     |   | (992,494     | )             |  |   | (272,536                 | ) |  |   |           |   |  |   | (1,265,030  | )
|Issuances of common stock:                   |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|Stock options, warrants and restricted stock |  | 387,260              |  |                           | 388    |                    |   | 1,049,687   |                                     |   |             |               |  |   |                         |   |  |   |           |   |  |   | 1,050,075   |  
|Stock based compensation                     |  |                     |  |                           |       |                    |   | 538,625     |                                     |   |             |               |  |   |                         |   |  |   |           |   |  |   | 538,625     |  
|Purchases of treasury stock                  |  |                     |  |                           |       |                    |   |            |                                     |   |             |               |  |   |                         |   |  |   | (376,828   | ) |  |   | (376,828    | )
|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  
|                                             |  |                      |  |                           |        |                    |  
|Balances at March 31, 2010                   |  | 35,302,281           |  | $                         | 35,303 |                    | $ | 387,140,716 |                                     | $ | (216,124,346 | )             |  | $ | 2,524,252                |   |  | $ | (3,192,571 | ) |  | $ | 170,383,354 |  
|                                             |  |                      |  |                           |        |                    |   |             |                                     |   |              |               |  |   |                          |   |  |   |            |   |  |   |             |  

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, |           
|                                                                            |  | 2010                                  |            |   | 2009 |  
|Operating activities:                                                       |  |                                       |            |   |      |   |            |  
|Net loss                                                                    |  | $                                     | (992,494   | ) |      | $ | (3,475,076 | )
|Loss on discontinued operations                                             |  |                                       | 313,460    |   |      |   | 153,501    |  
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Loss from continuing operations, net of tax                                 |  |                                       | (679,034   | ) |      |   | (3,321,575 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                       |            |   |      |   |            |  
|Stock based compensation                                                    |  |                                       | 530,192    |   |      |   | 1,029,993  |  
|Depreciation and amortization                                               |  |                                       | 1,952,425  |   |      |   | 3,023,045  |  
|Deferred income taxes                                                       |  |                                       | (41        | ) |      |   | 33,935     |  
|Increase in restricted cash                                                 |  |                                       | (8,345     | ) |      |   | (10,724    | )
|Changes in operating assets and liabilities:                                |  |                                       |            |   |      |   |            |  
|Trade accounts receivable, net                                              |  |                                       | 8,604,149  |   |      |   | 9,238,228  |  
|Unbilled revenue                                                            |  |                                       | (1,815,784 | ) |      |   | 1,226,437  |  
|Inventories                                                                 |  |                                       | (1,391,531 | ) |      |   | 1,769,202  |  
|Prepaid expenses and other assets                                           |  |                                       | 669,546    |   |      |   | (1,777,506 | )
|Accounts payable                                                            |  |                                       | (534,388   | ) |      |   | (8,462,414 | )
|Accrued expenses and other liabilities                                      |  |                                       | (1,448,886 | ) |      |   | (1,706,996 | )
|Deferred revenue                                                            |  |                                       | 750,669    |   |      |   | (5,821,676 | )
|                                                                            |  |                                       |            |   |      |   |            |  
|Net cash provided by (used in) continuing operating activities              |  |                                       | 6,628,972  |   |      |   | (4,780,051 | )
|Cash used in operation of discontinued operations                           |  |                                       | (833,995   | ) |      |   | (341,305   | )
|                                                                            |  |                                       |            |   |      |   |            |  
|Cash provided by (used in) operating activities                             |  |                                       | 5,794,977  |   |      |   | (5,121,356 | )
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Investing activities:                                                       |  |                                       |            |   |      |   |            |  
|Purchases of property, plant and equipment                                  |  |                                       | (366,150   | ) |      |   | (664,378   | )
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Net cash used in investing activities                                       |  |                                       | (366,150   | ) |      |   | (664,378   | )
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Financing activities:                                                       |  |                                       |            |   |      |   |            |  
|Proceeds from issuance of common stock                                      |  |                                       | 1,050,075  |   |      |   | 50,591     |  
|Borrowings under lines of credit                                            |  |                                       | 500,000    |   |      |   | 4,405,000  |  
|Repayments under lines of credit                                            |  |                                       | (500,000   | ) |      |   | (2,023,928 | )
|Repayments of notes payable and long-term debt                              |  |                                       | (15,496    | ) |      |   | (15,467    | )
|Purchase of treasury shares                                                 |  |                                       | (376,828   | ) |      |   | (351,187   | )
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Net cash provided by financing activities                                   |  |                                       | 657,751    |   |      |   | 2,065,009  |  
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Effect of foreign exchange rate on cash                                     |  |                                       | (234,019   | ) |      |   | 226,043    |  
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Net change in cash and cash equivalents                                     |  |                                       | 5,852,559  |   |      |   | (3,494,682 | )
|Cash and cash equivalents at beginning of period                            |  |                                       | 22,270,262 |   |      |   | 30,353,728 |  
|                                                                            |  |                                       |            |   |      |   |            |  
|                                                                            |  |                                      
|Cash and cash equivalents at end of period                                  |  | $                                     | 28,122,821 |   |      | $ | 26,859,046 |  
|                                                                            |  |                                       |            |   |      |   |            |  

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, 2010 and 2009



|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.

As more fully described in Note 8, the Companys Board of Directors approved a plan in 2009 to sell PureTech Systems, Inc.
(PureTech). As a result, the results of operations and the assets and liabilities of PureTech are included as discontinued operations in the accompanying consolidated financial statements.

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, 2010 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, 2010 and December 31, 2009, trade accounts receivable, net was comprised of the following:



|                                |  |               |            |   |                  |   |            |  
|------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                |  | March 31,2010 |            |   | December 31,2009 |  
|U.S. government                 |  | $             | 8,447,000  |   |                  | $ | 12,471,620 |  
|Commercial and other            |  |               | 20,237,088 |   |                  |   | 24,775,531 |  
|                                |  |               |            |   |                  |   |            |  
|                                |  | $             | 28,684,088 |   |                  | $ | 37,247,151 |  
|Allowance for doubtful accounts |  |               | (532,974   | ) |                  |   | (495,942   | )
|                                |  |               |            |   |                  |   |            |  
|Trade accounts receivable, net  |  | $             | 28,151,114 |   |                  | $ | 36,751,209 |  
|                                |  |               |            |   |                  |   |            |  

At March 31, 2010 and December 31, 2009, no customer other than the U.S. government accounted for
10% or greater of the net trade accounts receivable balance.



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

At
March 31, 2010 and December 31, 2009, inventories were comprised of the following:



|                         |  |               |            |   |                  |   |            |  
|------------------------ |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                         |  | March 31,2010 |            |   | December 31,2009 |  
|Raw materials            |  | $             | 12,839,391 |   |                  | $ | 11,696,878 |  
|Work in progress         |  |               | 3,695,013  |   |                  |   | 3,662,442  |  
|Finished goods           |  |               | 8,308,424  |   |                  |   | 8,302,707  |  
|                         |  |               |            |   |                  |   |            |  
|                         |  |              
|                         |  | $             | 24,842,828 |   |                  | $ | 23,662,027 |  
|Reserve for obsolescence |  |               | (1,078,496 | ) |                  |   | (1,171,208 | )
|                         |  |               |            |   |                  |   |            |  
|                         |  |              
|                         |  | $             | 23,764,332 |   |                  | $ | 22,490,819 |  
|                         |  |               |            |   |                  |   |            |  



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##### Table of Contents

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

Goodwill and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable. Additionally, goodwill is tested for impairment at least annually. Goodwill is not amortized. 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 2010 or 2009. 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 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. 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, 2010 and December 31, 2009, the Company had included in deferred revenue $3,170,887 and $2,685,423 of excess billings or customer payments, respectively, related to percentage of
completion timing differences. Deferred contract costs at March 31, 2010 and December 31, 2009 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, 2010 and December 31, 2009, the Company had unbilled revenue of $10,789,028 and $8,957,090,
respectively, included in the accompanying financial statements, substantially all of which is expected to be collected within one year. At March 31, 2010 and December 31, 2009, this amount included $1,387,446 and $1,501,147, respectively,
of unbilled revenue related to an engineering and integration project, which was billed in the following month, and $2,084,816 and $1,876,580, respectively, of unbilled revenue related to two intelligent transportation solutions projects. Accrued
contract costs at March 31, 2010 and December 31, 2009, were not material. The Company had no material claims outstanding under its research and development contracts as at March 31, 2010.

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 $2,216,381 and $1,798,918 at March 31, 2010 and December 31, 2009, respectively, of warranty agreements and prepayments on service contracts.

The Company recognizes revenue from software license fees 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 $352,303 and $459,007 at March 31, 2010 and December 31, 2009, respectively, of revenue deferred under multiple-element software arrangements for post contract customer support.



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

The Company values equity-classified, share-based payments to employees, including grants of employee stock options, at fair value on the
date of grant and expenses stock-based compensation over the applicable vesting period. Share-based awards granted or modified are recognized in compensation expense over the applicable vesting period.

During the three months ended March 31, 2010 and 2009, the Company recorded non-cash stock-based compensation expense of $538,625
and $1,038,968, respectively, including $8,433 and $8,975, respectively of expense associated with discontinued operations (Note 8). As of March 31, 2010, and December 31, 2009, the Companys total unrecognized compensation cost
related to stock-based awards was $2.3 million and $2.8 million, respectively.



8



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##### Table of Contents

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

The Company calculates basic loss per share 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, 2010, the Company had 35,131,153 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 910,930 weighted average shares of stock. 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.



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

The 2009 balances in the consolidated financial statements and notes to consolidated financial statements have been reclassified to
conform to the 2010 presentation of discontinued operations (Note 8). These reclassifications had no impact on reported net income or earnings per share.



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

Under U.S. GAAP, 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 must maximize the use of observable inputs
and minimize the use of unobservable inputs. U.S. GAAP includes 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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, and because the Companys credit risk
profile has not changed significantly since the debt agreements were initiated.

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. These assets fall within level 3 of the fair value hierarchy, as significant unobservable inputs such as the Companys projected operating results are used to estimate the fair value of these assets. During the three months ended
March 31, 2010, $148,100 of other long-term assets were written off in connection with discontinued operations to remeasure these nonfinancial assets to fair value (Note 8). 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.



9



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##### Table of Contents

In April 2010, the FASB issued ASU 2010-17, Revenue Recognition  Milestone Method
(Topic 605)  Milestone Method of Revenue Recognition  a consensus of the FASB Emerging Issues Task Force, which defines a milestone and describes when it may be appropriate to apply the milestone method of revenue recognition for
research or development transactions. ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. This guidance is effective on a prospective basis for
milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. Furthermore, a Company may elect, but is not required, to adopt this guidance retrospectively. The
Company is currently assessing the impact of this guidance; however, adoption is not expected to have a material impact on the Companys consolidated financial position or results of operations.



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

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 $18,750 and $17,903 in
the first three months of 2010 and 2009, 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 2010 and 2009. 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 $17,586
and $17,074 was incurred in the first three months of 2010 and 2009, respectively. Effective September 1, 2009, the lease was renewed with similar terms for a one year period ending on September 15, 2010, and can be renewed for five
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.

On or about February 24, 2010, Research International, Inc. filed a complaint against ICx Technologies, Inc. and its wholly owned
subsidiary, MesoSystems Technology, Inc., in the United States District Court, Western District of Washington at Seattle, alleging infringement of Research Internationals United States Patent Nos. 6,484,594 and 7,261,008. The parties have
discussed settlement and have exchanged draft settlement documents. While we hope to settle the matter in the near future, we can provide no assurance that any settlement of this matter will not result in a material adverse effect on our business,
financial condition and results of operations.



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

As of March 31, 2010 and December 31, 2009, 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

One of the Companys subsidiaries has an operating line of credit with a bank 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, but the agreement contains an interest rate floor of 5.50%. Maximum borrowings under the line are $2.5 million. The
line matures on April 26, 2011. At March 31, 2010 and December 31, 2009, no amounts were outstanding under the line of credit.



|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, 2010, the Company repurchased 52,133 shares in settlement of employees tax obligations for a total of $376,828 or an average of $7.23 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, 2010:



|                                               |  |                       |   |  |                           |     
|---------------------------------------------- |  | --------------------- | - |  | ------------------------- | ----
|                                               |  | 2010                 
|                                               |  | RestrictedStock Units |   |  | WeightedAverageFair Value
|Nonvested RS and RSUs outstanding at January 1 |  | 490,512               |   |  | $                         | 6.64
|RS and RSUs granted                            |  |                      |   |  |                           |    
|RS and RSUs vested                             |  | (168,434              | ) |  |                           | 5.73
|RS and RSUs forfeited                          |  | (7,363                | ) |  |                           | 5.96
|                                               |  |                       |   |  |                           |     
|                                               |  |                      
|Nonvested RS and RSUs outstanding at March 31  |  | 314,715               |   |  | $                         | 7.14
|                                               |  |                       |   |  |                           |     

The Company recorded stock-based compensation expense
of $429,750 and $810,435 during the three months ended March 31, 2010 and 2009, 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, 2010 was $2,193,564. Also at March 31, 2010, total compensation cost related to nonvested restricted stock and RSU awards that had not yet been recognized totaled $1,488,874. The weighted average period
over which this amount will be recognized is estimated to be 2.2 years.

Stock option activity for options issued under the
2007 Equity Incentive Plan was as follows as of March 31, 2010, and for the three months then ended:



|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     
|---------------------------------------- |  | ----------------------- | - |  | ---------------------------- | ---- | ------------------------ | ---- | ------------------------------------------------- | ----
|                                         |  | SharesSubject toOptions |   |  | WeightedAverageExercisePrice |      | WeightedAverageFairValue |      | WeightedAverageRemainingContractualTerm(in years)
|Options outstanding at January 1, 2010   |  | 2,340,659               |   |  | $                            | 5.84 |                          | 3.06 |                                                   |     
|Options granted                          |  |                        |   |  |                              |     |                          |     |                                                   |     
|Options exercised                        |  | (208,966                | ) |  |                              | 5.02 |                          | 3.54 |                                                   |     
|Options terminated, cancelled or expired |  | (28,828                 | ) |  |                              | 6.87 |                          | 5.74 |                                                   |     
|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     
|                                         |  |                         |   | 
|Options outstanding at March 31, 2010    |  | 2,102,865               |   |  | $                            | 5.90 |                          | 2.98 |                                                   | 6.46
|                                         |  |                         |   | 
|Options exercisable at March 31, 2010    |  | 1,541,367               |   |  | $                            | 6.22 |                          | 3.39 |                                                   | 5.54
|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     

The fair value of options granted is estimated at the
grant date using the Black-Scholes option pricing model, which includes various assumptions. No options were granted during the three months ended March 31, 2010 or 2009.



11



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##### Table of Contents

Stock option activity for board-discretionary options was as follows as of March 31,
2010, and for the three months then ended:



|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     
|---------------------------------------- |  | ----------------------- | - |  | ---------------------------- | ---- | ------------------------ | ---- | ------------------------------------------------- | ----
|                                         |  | SharesSubject toOptions |   |  | WeightedAverageExercisePrice |      | WeightedAverageFairValue |      | WeightedAverageRemainingContractualTerm(in years)
|Options outstanding at January 1, 2010   |  | 109,200                 |   |  | $                            | 0.16 |                          | 9.42 |                                                   |     
|Options granted                          |  |                        |   |  |                              |     |                          |     |                                                   |     
|Options exercised                        |  | (9,860                  | ) |  |                              | 0.16 |                          | 9.42 |                                                   |     
|Options terminated, cancelled or expired |  |                        |   |  |                              |     |                          |     |                                                   |     
|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     
|                                         |  |                         |   | 
|Options outstanding at March 31, 2010    |  | 99,340                  |   |  | $                            | 0.16 |                          | 9.42 |                                                   | 5.28
|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     
|                                         |  |                         |   | 
|Options exercisable at March 31, 2010    |  | 99,340                  |   |  | $                            | 0.16 |                          | 9.42 |                                                   | 5.28
|                                         |  |                         |   |  |                              |      |                          |      |                                                   |     

Stock-based compensation expense pertaining to stock
options totaled $108,875 and $228,533 for the three months ended March 31 2010 and 2009, respectively. Cash received from the exercise of stock options totaled $1,050,075 and $50,591 for the three months ended March 31, 2010 and 2009,
respectively.

The aggregate intrinsic value of outstanding options at March 31, 2010 was $4,435,561. Also at
March 31, 2010, total compensation cost related to nonvested awards that had not yet been recognized totaled $770,865. The weighted average period over which this amount will be recognized is estimated to be 3.2 years.



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

In the third quarter of 2009, the Companys Board of Directors adopted a plan of sale and put the assets of PureTech Systems, Inc.
(PureTech), a unit in the Solutions segment, up for sale, as the business model of this unit no longer aligned with the strategic plans of the Company. The Company expects to complete the sale of PureTech in the second quarter of 2010. In
conjunction with this plan, the Company recognized a loss on discontinued operations of $313,460 and $153,501 in the three months ended March 31, 2010 and 2009, respectively. The 2010 loss included a $148,100 impairment charge to write down
PureTechs non-current assets to fair market value. Prior year financial statements included herein have been reclassified to present the operations of PureTech as discontinued operations.

Revenues and net loss before income taxes of PureTech reported in discontinued operations are as follows:



|                             |  |                                      |          |   |      |   |          |  
|---------------------------- |  | ------------------------------------ | -------- | - | ---- | - | -------- | -
|                             |  | For the three months ended March 31, |         
|                             |  | 2010                                 |          |   | 2009 |  
|Revenues                     |  | $                                    | 955,014  |   |      | $ | 391,427  |  
|Net loss before income taxes |  |                                      | (313,460 | ) |      |   | (153,501 | )

The assets and liabilities
of the discontinued operations are presented separately in the consolidated balance sheets under the captions Current assets of discontinued operations, Noncurrent assets of discontinued operations, and Current
liabilities of discontinued operations and consist of the following:



|                                        |  |               |           |                  |   |          
|--------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                        |  | March 31,2010 |           | December 31,2009
|Assets of discontinued operations:      |  |               |           |                  |   |          
|Accounts receivable, net                |  | $             | 1,145,498 |                  | $ | 1,016,692
|Inventories                             |  |               | 21,319    |                  |   | 25,805   
|Property, plant and equipment, net      |  |               | 16,593    |                  |   | 26,845   
|Other assets                            |  |               | 229,443   |                  |   | 348,294  
|                                        |  |               |           |                  |   |          
|                                        |  |              
|Total assets                            |  | $             | 1,412,853 |                  | $ | 1,417,636
|                                        |  |               |           |                  |   |          
|Liabilities of discontinued operations: |  |               |           |                  |   |          
|Accounts payable                        |  | $             | 6,521     |                  | $ | 3,211    
|Deferred revenue                        |  |               | 287,682   |                  |   | 824,743  
|                                        |  |               |           |                  |   |          
|                                        |  |              
|Total liabilities                       |  | $             | 294,203   |                  | $ | 827,954  
|                                        |  |               |           |                  |   |          



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##### Table of Contents

|9. | Segment 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. Most general and administrative expenses and all sales and
marketing expenses are allocated to the Companys reportable segments.

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



|                                                |  |                                           |             |   |              |   |            |           |  |   |                  |   |  |   |             |  
|----------------------------------------------- |  | ----------------------------------------- | ----------- | - | ------------ | - | ---------- | --------- |  | - | ---------------- | - |  | - | ----------- | -
|                                                |  | For the three months ended March 31, 2010 |            
|                                                |  | Detection                                 |             |   | Surveillance |   |            | Solutions |  |   | SegmentsCombined |  
|Total revenues                                  |  | $                                         | 27,158,055  |   |              | $ | 7,276,391  |           |  | $ | 6,230,527        |   |  | $ | 40,664,973  |  
|Intersegment revenues                           |  |                                           |            |   |              |   |           |           |  |   | (95,147          | ) |  |   | (95,147     | )
|                                                |  |                                           |             |   |              |   |            |           |  |   |                  |   |  |   |             |  
|Revenues from external customers                |  |                                           | 27,158,055  |   |              |   | 7,276,391  |           |  |   | 6,135,380        |   |  |   | 40,569,826  |  
|Segment operating income (loss)                 |  |                                           | 1,707,973   |   |              |   | (1,362,960 | )         |  |   | (682,821         | ) |  |   | (337,808    | )
|Depreciation and amortization                   |  |                                           | 1,339,545   |   |              |   | 374,598    |           |  |   | 79,257           |   |  |   | 1,793,400   |  
|Segment property, plant and equipment additions |  |                                           | 228,364     |   |              |   | 122,530    |           |  |   | 3,159            |   |  |   | 354,053     |  
|                                                |  |                                           |             |  
|As of March 31, 2010                            |  |                                           |             |   |              |   |            |           |  |   |                  |  
|Segment total assets                            |  | $                                         | 103,190,356 |   |              | $ | 32,979,424 |           |  | $ | 20,700,023       |   |  | $ | 156,869,803 |  
|Segment goodwill                                |  |                                           | 51,478,231  |   |              |   | 12,736,716 |           |  |   | 6,123,547        |   |  |   | 70,338,494  |  
|                                                | 
|                                                |  | For the three months ended March 31, 2009 |            
|                                                |  | Detection                                 |             |   | Surveillance |   |            | Solutions |  |   | SegmentsCombined |  
|Total revenues                                  |  | $                                         | 21,197,607  |   |              | $ | 16,079,575 |           |  | $ | 10,264,061       |   |  | $ | 47,541,243  |  
|Intersegment revenues                           |  |                                           |            |   |              |   |           |           |  |   | (150,274         | ) |  |   | (150,274    | )
|                                                |  |                                           |             |   |              |   |            |           |  |   |                  |   |  |   |             |  
|Revenues from external customers                |  |                                           | 21,197,607  |   |              |   | 16,079,575 |           |  |   | 10,113,787       |   |  |   | 47,390,969  |  
|Segment operating income (loss)                 |  |                                           | (2,739,902  | ) |              |   | (402,799   | )         |  |   | 27,734           |   |  |   | (3,114,967  | )
|Depreciation and amortization                   |  |                                           | 1,914,777   |   |              |   | 743,801    |           |  |   | 180,079          |   |  |   | 2,838,657   |  
|Segment property, plant and equipment additions |  |                                           | 616,566     |   |              |   | (12,965    | )         |  |   | 17,992           |   |  |   | 621,593     |  
|                                                |  |                                           |             |  
|As of December 31, 2009                         |  |                                           |             |   |              |   |            |           |  |   |                  |  
|Segment total assets                            |  | $                                         | 105,712,857 |   |              | $ | 37,555,241 |           |  | $ | 23,552,341       |   |  | $ | 166,820,439 |  
|Segment goodwill                                |  |                                           | 51,478,229  |   |              |   | 12,736,716 |           |  |   | 6,059,545        |   |  |   | 70,274,490  |  

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, |         
|                                                  |  | 2010                                 |          |   | 2009 |  
|Operating losses from reportable segments         |  | $                                    | (337,808 | ) |      | $ | (3,114,967 | )
|Unallocated depreciation and amortization expense |  |                                      | (159,025 | ) |      |   | (184,388   | )
|Unallocated general and administrative expense    |  |                                      | (133,498 | ) |      |   |           |  
|Interest income                                   |  |                                      | 11,775   |   |      |   | 51,853     |  
|Interest expense                                  |  |                                      | (27,434  | ) |      |   | (17,279    | )
|Other non-operating gains (losses), net           |  |                                      | 247,207  |   |      |   | 56,495     |  
|                                                  |  |                                      |          |   |      |   |            |  
|                                                  |  |                                     
|Loss before income taxes                          |  | $                                    | (398,783 | ) |      | $ | (3,208,286 | )
|                                                  |  |                                      |          |   |      |   |            |  



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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,
|                                                                       | 2010 |                                      | 2009   
|Total property, plant and equipment additions from reportable segments |      | $                                    | 354,053 |  | $ | 621,593
|Unallocated property, plant and equipment additions                    |      |                                      | 12,097  |  |   | 42,785 
|                                                                       |      |                                      |         |  |   |        
|                                                                       |      |                                     
|Total property, plant and equipment additions                          |      | $                                    | 366,150 |  | $ | 664,378
|                                                                       |      |                                      |         |  |   |        

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



|                                                                 |  |                |             |                   |   |            
|---------------------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | -----------
|                                                                 |  | March 31, 2010 |             | December 31, 2009
|Total assets from reportable segments                            |  | $              | 156,869,803 |                   | $ | 166,820,439
|Unallocated cash and cash equivalents, including restricted cash |  |                | 33,341,829  |                   |   | 26,105,559 
|Unallocated prepaid expenses and other assets                    |  |                | 4,509,668   |                   |   | 3,733,537  
|Deferred income taxes                                            |  |                | 353,942     |                   |   | 346,721    
|Current and noncurrent assets of discontinued operations         |  |                | 1,412,853   |                   |   | 1,417,636  
|                                                                 |  |                |             |                   |   |            
|                                                                 |  |               
|Total assets                                                     |  | $              | 196,488,095 |                   | $ | 198,423,892
|                                                                 |  |                |             |                   |   |            



|10. | Subsequent Events
|--- | -----------------

In
April 2010, the Company entered into a Standby Letter of Credit in conjunction with one of its customer contracts. As such, approximately $3.9 million of the Companys cash was placed under restriction to serve as collateral for this letter of
credit. This restriction expires no later than October 30, 2010.

In May 2010, the Company received an executed release
of the performance bond requiring the Company to restrict $8.5 million in cash as of March 31, 2010 and December 31, 2009.



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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 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, Chevron, Dow Chemical Company, Solvay Chemicals, Dallas Water Utilities, Pantex, Magal/Senstar,
Johnson Controls, the Civil Police of Rio de Janeiro, Perth Airport 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------



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| |  |  | 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 and release new products and provide integrated solutions.

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 our integrated towers, our thermal imaging cameras, and radar products. In our Solutions
segment, we primarily derive product revenue from the sale of our 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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.



16



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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 2009, our general and administrative expenses decreased compared to previous years as we continued to gain efficiencies in the overall integration of our business units and continued
our efforts to control costs. In 2010, we expect that our general and administrative expenses will stabilize or grow slightly compared to 2009.

Selling 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 of the economy in late 2008 and the continued uncertainty in 2009,
we took steps to scale back certain aspects of our commercial sales and marketing activities. Accordingly, during 2009 our sales and marketing expense decreased compared to previous years and we expect that in 2010 our sales and marketing costs will
stabilize or grow slightly compared to 2009.

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 continued to secure additional funding in 2009. Accordingly, our
internal research and development expense declined in 2009 as we utilized our technical resources on externally funded research and development activities, and we expect that in 2010 internal research and development expenses will stabilize or grow
slightly compared to 2009.



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Results of Operations - Comparison of First Quarters of 2010 and 2009

The following table presents selected summarized consolidated financial information for the three months ended March 31, 2010 and
2009.



|                                                                |                                   |                             |        |      |  |   |        |  
|--------------------------------------------------------------- | --------------------------------- | --------------------------- | ------ | ---- |  | - | ------ | -
|                                                                |                                   | Three Months EndedMarch 31, |       
|                                                                | 2010                              |                             |        | 2009 | 
|                                                                | (dollars in thousands)(unaudited) |                            
|Product revenue                                                 |                                   | $                           | 21,715 |      |  | $ | 16,321 |  
|Gross profit %                                                  |                                   |                             | 61.5   | %    |  |   | 50.4   | %
|Contract research and development revenue                       |                                   | $                           | 12,161 |      |  | $ | 11,282 |  
|Gross profit %                                                  |                                   |                             | 26.4   | %    |  |   | 26.3   | %
|Service and other revenue                                       |                                   | $                           | 6,694  |      |  | $ | 19,788 |  
|Gross profit %                                                  |                                   |                             | 28.0   | %    |  |   | 28.3   | %
|                                                                |                                   |                             |        |      |  |   |        |  
|                                                                |                                   |                            
|Total revenue                                                   |                                   | $                           | 40,570 |      |  | $ | 47,391 |  
|                                                                |                                   |                             |        |      |  |   |        |  
|                                                                |                                   |                            
|Gross profit %                                                  |                                   |                             | 45.4   | %    |  |   | 35.4   | %
|                                                                |                                   |                             |        |      |  |   |        |  
|                                                                |                                   |                            
|Operating income (loss) excluding depreciation and amortization |                                   | $                           | 1,322  |      |  | $ | (276   | )
|Depreciation and amortization                                   |                                   |                             | 1,952  |      |  |   | 3,023  |  
|                                                                |                                   |                             |        |      |  |   |        |  
|                                                                |                                   |                            
|Operating loss                                                  |                                   | $                           | (630   | )    |  | $ | (3,299 | )
|                                                                |                                   |                             |        |      |  |   |        |  
|                                                                |                                   |                            
|Loss from continuing operations                                 |                                   | $                           | (679   | )    |  | $ | (3,321 | )
|Loss from discontinued operations, net                          |                                   |                             | (313   | )    |  |   | (154   | )
|                                                                |                                   |                             |        |      |  |   |        |  
|                                                                |                                   |                            
|Net loss                                                        |                                   | $                           | (992   | )    |  | $ | (3,475 | )
|                                                                |                                   |                             |        |      |  |   |        |  

Product Revenue and Gross Profit. Product revenue increased $5.4 million, or 33%, to $21.7
million in the first quarter of 2010 from $16.3 million in the first quarter of 2009. The increase primarily resulted from increased sales of products in our Detection segment, as discussed below in Detection Segment  Comparison of the
First Quarters Ended March 31, 2010 and 2009. Gross profit as a percentage of product revenue was 61.5% and 50.4% in the first quarters of 2010 and 2009, respectively. The increase in gross profit percentage is due to a greater proportion
of product revenue from our Detection segment as our Detection products carry higher gross margins than products from our Surveillance and Solutions segments.

Contract Research and Development Revenue and Gross Profit. Contract research and development revenue increased $0.9 million,
or 8%, to $12.2 million in the first quarter of 2010 from $11.3 million in the first quarter of 2009. In our Detection segment, contract research and development revenue increased $0.5 million in the first quarter of 2010 compared to the same period
last year primarily due to increased funding for chemical and biological programs. The increased revenue from Detection was accompanied by a $0.4 million increase in contract research and development revenue in our Surveillance segment in the first
quarter of 2010 compared to the same quarter in 2009. The increase in Surveillance revenue resulted from additional funding for our radar technology. Gross profit as a percentage of contract research and development revenue was 26.4% and 26.3% in
the first quarters of 2010 and 2009, respectively.

Service and Other Revenue and Gross Profit. Service and other
revenue decreased $13.1 million, or 66%, to $6.7 million in the first quarter of 2010 from $19.8 million in the first quarter of 2009. As discussed more fully below in Surveillance Segment  Comparison of the First Quarters Ended
March 31, 2010 and 2009, service and other revenue accounted for approximately $10.1 million of the revenue decrease, the majority of which relates to the delivery of custom platforms under a contract that ended in 2009. In our Solutions
segment, service and other revenue accounted for approximately $3.4 million of the decrease, the majority of which was related to a slow-down in awards from state and local governments for intelligent transportation systems and video networking and
surveillance. Gross profit as a percentage of service and other revenue was consistent at 28.0% and 28.3% in the first quarters of 2010 and 2009, respectively.

Operating Loss. Operating loss decreased $2.7 million, or 82%, to $0.6 million in the first quarter of 2010 from $3.3 million
in the first quarter of 2009. The decrease is primarily related to an increase in gross profit dollars of $1.7 million over the comparable quarter and a $1.0 million decrease in operating expenses. The increase in gross profit resulted from our
revenue mix being more heavily weighted toward our detection products which carry higher gross margins than revenue from contract research and development and services. The decrease in operating expenses primarily resulted from lower amortization
expense from acquired intangible assets in 2005. Operating income (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



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and future cash flow. Accordingly, we believe operating income (loss) excluding depreciation and amortization is a more meaningful measure of our recurring operations and an indicator of our
working capital requirements. Operating income (loss) excluding depreciation and amortization increased $1.6 million, or 533%, to income of $1.3 million in the first quarter of 2010 from a loss of ($0.3) million in the first quarter of 2009 due to
increased gross profit as explained earlier in this section.

Loss from Continuing Operations. Our loss from
continuing operations decreased $2.6 million, or 79%, to $0.7 million in the first quarter of 2010 from $3.3 million in the first quarter of 2009 primarily due to increased gross profit and reduced operating expenses as explained in the
Operating Loss section above.

Loss from Discontinued Operations. In the third quarter of 2009, our
Board of Directors adopted a plan of sale and put the assets of PureTech Systems, Inc. (PureTech), a unit in the Solutions segment, up for sale, as the business model of this unit no longer aligned with our strategic plans. We expect to complete the
sale of PureTech in the second quarter of 2010. In connection with this plan, we recognized a loss on discontinued operations of $0.3 million and $0.2 million in the first quarters of 2010 and 2009, respectively.

Net Loss. Net loss decreased $2.5 million, or 71%, to $1.0 million in the first quarter of 2010 from $3.5 million in the
first quarter of 2009 primarily due to 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, 2010 and 2009



|                                          |                                   |                             |        |      |  |   |        |  
|----------------------------------------- | --------------------------------- | --------------------------- | ------ | ---- |  | - | ------ | -
|                                          |                                   | Three Months EndedMarch 31, |       
|                                          | 2010                              |                             |        | 2009 | 
|                                          | (dollars in thousands)(unaudited) |                            
|Revenue and gross profit %                |                                   |                             |        |      |  |   |        |  
|Product revenue                           |                                   | $                           | 14,409 |      |  | $ | 9,295  |  
|Contract research and development revenue |                                   |                             | 11,591 |      |  |   | 11,084 |  
|Service and other revenue                 |                                   |                             | 1,158  |      |  |   | 819    |  
|                                          |                                   |                             |        |      |  |   |        |  
|                                          |                                   |                            
|Total revenue                             |                                   | $                           | 27,158 |      |  | $ | 21,198 |  
|                                          |                                   |                             |        |      |  |   |        |  
|                                          |                                   |                            
|Gross profit %                            |                                   |                             | 46.7   | %    |  |   | 40.3   | %
|                                          |                                   |                             |        |      |  |   |        |  
|                                          |                                   |                            
|Operating income (loss)                   |                                   | $                           | 1,708  |      |  | $ | (2,740 | )
|                                          |                                   |                             |        |      |  |   |        |  

Product Revenue. Product revenue increased $5.1 million, or 55%, to $14.4 million in the first
quarter of 2010 from $9.3 million in the first quarter of 2009. The increase primarily resulted from increased sales of our explosive and radiation 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. 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 increased $0.5 million, or 5%, to $11.6
million in the first quarter of 2010 from $11.1 million in the first quarter of 2009. The increase is primarily due to additional chemical and biological program funding.

Service and Other Revenue. Service and other revenue increased $0.4 million, or 50%, to $1.2 million in the first quarter of
2010 from $0.8 million in the first quarter of 2009.

Gross Profit. Gross profit as a percentage of revenue increased
from 40.3% in the first quarter of 2009 to 46.7% in the first quarter of 2010. The increase is primarily due to a higher percentage of revenue from product sales which carry higher gross margins than revenue from contract research and development.

Operating Income (Loss). Operating income (loss) increased $4.4 million, or 163%,
to income of $1.7 million in the first quarter of 2010 from a loss of ($2.7) million in the first quarter of 2009. The increase in operating income was primarily due to the $4.2 million increase in gross profit over the comparable quarter. The
increase in gross profit is due to a higher percentage of revenue from detection products which carry higher gross margins than revenue from contract research and development revenue.



19



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##### Table of Contents

Surveillance SegmentComparison of the Three Months Ended March 31, 2010 and
2009



|                                          |                                   |                             |        |      |  |   |        |  
|----------------------------------------- | --------------------------------- | --------------------------- | ------ | ---- |  | - | ------ | -
|                                          |                                   | Three Months EndedMarch 31, |       
|                                          | 2010                              |                             |        | 2009 | 
|                                          | (dollars in thousands)(unaudited) |                            
|Revenue and gross profit %                |                                   |                             |        |      |  |   |        |  
|Product revenue                           |                                   | $                           | 6,044  |      |  | $ | 5,112  |  
|Contract research and development revenue |                                   |                             | 570    |      |  |   | 198    |  
|Service and other revenue                 |                                   |                             | 662    |      |  |   | 10,770 |  
|                                          |                                   |                             |        |      |  |   |        |  
|                                          |                                   |                            
|Total revenue                             |                                   | $                           | 7,276  |      |  | $ | 16,080 |  
|                                          |                                   |                             |        |      |  |   |        |  
|                                          |                                   |                            
|Gross profit %                            |                                   |                             | 54.0   | %    |  |   | 32.7   | %
|                                          |                                   |                             |        |      |  |   |        |  
|                                          |                                   |                            
|Operating loss                            |                                   | $                           | (1,363 | )    |  | $ | (403   | )
|                                          |                                   |                             |        |      |  |   |        |  

Product Revenue. Product revenue increased $0.9 million, or 18%, to $6.0 million in the first
quarter of 2010 from $5.1 million in the first quarter of 2009. The increase is due to additional sales of our radars, cameras and platforms. Although we experienced an increase in product sales, compared to the prior year our product revenue was
lower than expected in the first quarter of 2009. We believe that the delay in the passage of the Federal department of defense budget in 2009 had a negative impact on the timing of awards that we expected to receive for our surveillance products.
During the second quarter of 2010, we have begun to see this trend reverse and expect to see higher product revenue in our Surveillance group during the second half of 2010.

Contract Research and Development Revenue. Contract research and development revenue increased $0.4 million, or 200%, to $0.6
million in the first quarter of 2010 from $0.2 million in the first quarter of 2009 primarily due increased funding for radar technologies.

Service and Other Revenue. Service and other revenue decreased $10.1 million, or 94%, to $0.7 million in the first quarter of
2010 from $10.8 million in the first quarter of 2009. The decrease resulted from the delivery of platforms under custom development contacts that ended in the second quarter of 2009. As discussed in Product Revenue above, we expect that
the trend in revenue for the surveillance segment will reverse as a result of increased awards for the delivery of products.

Gross Profit. Gross profit as a percentage of revenue was 54.0% and 32.7% in the first quarters of 2010 and 2009, respectively.
The increase in gross profit resulted from a higher percentage of revenue from product sales which carry a higher gross profit than revenue from custom development projects.

Operating Loss. Operating loss increased $1.0 million, or 250%, to $1.4 million in the first quarter of 2010 from $0.4
million in the first quarter of 2009. The increased loss primarily resulted from a $1.3 million decrease in gross profit due to lower revenues.

Solutions SegmentComparison of the Three Months Ended March 31, 2010 and 2009



|                                          |                                   |                             |       |      |  |   |        |  
|----------------------------------------- | --------------------------------- | --------------------------- | ----- | ---- |  | - | ------ | -
|                                          |                                   | Three Months EndedMarch 31, |      
|                                          | 2010                              |                             |       | 2009 | 
|                                          | (dollars in thousands)(unaudited) |                            
|Revenue and gross profit %                |                                   |                             |       |      |  |   |        |  
|Product revenue                           |                                   | $                           | 1,281 |      |  | $ | 1,938  |  
|Contract research and development revenue |                                   |                             | 37    |      |  |   | 35     |  
|Service and other revenue                 |                                   |                             | 4,913 |      |  |   | 8,291  |  
|                                          |                                   |                             |       |      |  |   |        |  
|                                          |                                   |                            
|Total revenue                             |                                   | $                           | 6,231 |      |  | $ | 10,264 |  
|                                          |                                   |                             |       |      |  |   |        |  
|                                          |                                   |                            
|Gross profit %                            |                                   |                             | 29.1  | %    |  |   | 29.0   | %
|                                          |                                   |                             |       |      |  |   |        |  
|                                          |                                   |                            
|Operating income (loss)                   |                                   | $                           | (683  | )    |  | $ | 29     |  
|                                          |                                   |                             |       |      |  |   |        |  



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##### Table of Contents

Product Revenue. Product revenue decreased $0.6 million, or 32%, to $1.3 million
in the first quarter of 2010 from $1.9 million in the first quarter of 2009 primarily due to timing differences in deliveries and delays in awards under the Integrated Commercial Intrusion Detection System (ICIDS) military program and a decrease in
our command and control software revenue.

Service and Other Revenue. Service and other revenue decreased $3.4 million,
or 41%, to $4.9 million in the first quarter of 2010 from $8.3 million in the first quarter of 2009. The decrease was primarily attributable lower revenue from our intelligent transportation systems business. The majority of our transportation
revenue is derived from state and local governments which have experienced funding shortages and delays in federal stimulus awards in 2009 which has impacted the timing and extent of new awards to our Solutions business. Although we expect to see
new awards in 2010 through stimulus programs, we expect to see a downward trend in revenue throughout 2010 compared to 2009.

Gross Profit. Gross profit as a percentage of revenue was relatively consistent at 29.1% and 29.0% in the first quarters of 2010
and 2009, respectively.

Operating Income (Loss). Operating income (loss) decreased $0.8 million, or 800%, to a
loss of ($0.7) million in the first quarter of 2010 from income of $0.1 million in the first quarter of 2009. The increased operating loss resulted from a $1.2 million decrease in gross profit due to lower revenues, which was offset by a $0.5
million decrease in operating expenses primarily from our continued progress towards integrating our business units and eliminating redundancies in our operations.

Total 2010 and 2009 revenues included in the preceding tables include $0.1 million of intersegment revenues in both years. Refer to Note
9 of the Notes to Consolidated Financial Statements for a reconciliation of total revenue to revenues from external customers.

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, 2010 and 2009:



|                                                                                           |                                   |                             |      |      |  |   |        |  
|------------------------------------------------------------------------------------------ | --------------------------------- | --------------------------- | ---- | ---- |  | - | ------ | -
|                                                                                           |                                   | Three Months EndedMarch 31, |     
|                                                                                           | 2010                              |                             |      | 2009 | 
|                                                                                           | (dollars in thousands)(unaudited) |                            
|Reconciliation of segment operating losses to consolidated loss from continuing operations |                                   |                             |      |      |  |   |        |  
|Segment operating losses                                                                   |                                   | $                           | (338 | )    |  | $ | (3,114 | )
|Unallocated depreciation and amortization expenses                                         |                                   |                             | (159 | )    |  |   | (184   | )
|Unallocated general and administrative expenses                                            |                                   |                             | (134 | )    |  |   |       |  
|Interest expense                                                                           |                                   |                             | (27  | )    |  |   | (17    | )
|Interest income                                                                            |                                   |                             | 12   |      |  |   | 51     |  
|Other nonoperating gains (losses), net                                                     |                                   |                             | 247  |      |  |   | 56     |  
|Income tax (expense) benefit                                                               |                                   |                             | (280 | )    |  |   | (113   | )
|                                                                                           |                                   |                             |      |      |  |   |        |  
|                                                                                           |                                   |                            
|Consolidated loss from continuing operations                                               |                                   | $                           | (679 | )    |  | $ | (3,321 | )
|                                                                                           |                                   |                             |      |      |  |   |        |  

Liquidity and Capital Resources

As of March 31, 2010, our principal sources of liquidity were cash and cash equivalents, including restricted cash, of $36.6 million
and accounts receivable of $28.2 million. Historically, we have experienced net cash outflows from operating activities and cash inflows from investing or financing activities. However, due to our continued focus on reducing operating expenses, our
operating losses excluding depreciation and amortization have been steadily decreasing, and we experienced positive operating income excluding depreciation and amortization of $0.9 million and $1.3 million in the quarters ended December 31,
2009 and March 31, 2010, respectively, resulting in positive operating cash flows in the first quarter of 2010. 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, 2010, we had firm
backlog of approximately $63 million and unfunded backlog of approximately $352 million. At March 31, 2009, we had firm backlog of approximately $85 million and unfunded backlog of approximately $347 million. We believe our backlog and recent
bookings combined with operating expense reductions will be sufficient to sustain our liquidity and cash flows in 2010 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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##### Table of Contents

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 $216.1 million at March 31, 2010, 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.

The following table shows our cash
and cash equivalents and working capital as of March 31, 2010 and December 31, 2009:



|                                                                              |  |                        |        |                        |   |       
|----------------------------------------------------------------------------- |  | ---------------------- | ------ | ---------------------- | - | ------
|                                                                              |  | As of March 31,2010    |        | As of December 31,2009
|                                                                              |  | (dollars in thousands)
|                                                                              |  | (unaudited)            |        |                       
|Cash and cash equivalents (including restricted cash)                         |  | $                      | 36,596 |                        | $ | 30,735
|Working capital (excluding assets and liabilities of discontinued operations) |  |                        | 78,134 |                        |   | 77,293

The following table
shows our cash flows from operating, investing and financing activities for the three months ended March 31, 2010 and 2009.



|                                                      |                                   |                             |       |      |  |   |        |  
|----------------------------------------------------- | --------------------------------- | --------------------------- | ----- | ---- |  | - | ------ | -
|                                                      |                                   | Three Months EndedMarch 31, |      
|                                                      | 2010                              |                             |       | 2009 | 
|                                                      | (dollars in thousands)(unaudited) |                            
|Summary of cash flow:                                 |                                   |                             |       |      |  |   |        |  
|Cash flows provided by (used in) operating activities |                                   | $                           | 5,795 |      |  | $ | (5,121 | )
|Cash flows used in investing activities               |                                   |                             | (366  | )    |  |   | (665   | )
|Cash flows provided by financing activities           |                                   |                             | 658   |      |  |   | 2,065  |  
|Effect of foreign exchange rate on cash               |                                   |                             | (234  | )    |  |   | 226    |  
|                                                      |                                   |                             |       |      |  |   |        |  
|                                                      |                                   |                            
|Consolidated net change in cash and cash equivalents  |                                   | $                           | 5,853 |      |  | $ | (3,495 | )
|                                                      |                                   |                             |       |      |  |   |        |  

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 provided by operating activities increased $10.9 million, or 214%, to $5.8 million for
the first quarter of 2010 from ($5.1) million in the first quarter of 2009 primarily due to reduced operating losses, the Companys increased focus on controlling inventory costs and timing differences that resulted in less deferred revenue. We
experienced positive cash flows from operating activities in the first quarter of 2010 and we expect to continue to experience positive operating cash flows 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 2010, cash flows used in investing activities included $0.4
million of capital expenditures. In the first quarter of 2009, cash flows used in investing activities included $0.7 million of capital expenditures. Capital expenditures for the first quarters of 2010 and 2009 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 2010 and 2009 were $0 and $2.4
million, respectively. The Company received $1.1 million and $0.1 million of cash proceeds related to stock options exercised in the first quarter of 2010 and 2009, respectively, and purchased $0.4 million of treasury shares in each of the quarters
ended March 31, 2010 and 2009.



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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 when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, title and risk have passed to the customer and collection from
the customer is reasonably assured, which typically occurs at the time the product is shipped.

Revenue Recognition
 Contract Research and Development and Services. 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. Under U.S. GAAP, 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. 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 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, 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 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 by us. 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



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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, 2010, we had goodwill of $70.3 million and identifiable intangible assets, net of accumulated amortization, of
$8.7 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. GAAP, goodwill is not amortized.

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. U.S. GAAP 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 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 the following methods: discounted cash flow, similar transactions and guideline company. Indications
of value from all three methods are used to derive the reporting units ultimate fair value by calculating a weighted average based on these three methods. Values resulting from the three methods are weighted based on factors and assumptions
related to the inputs used in each of the methods, giving more weight to inputs believed to be more reliable based on characteristics of the individual reporting units, market conditions and the current business environment. We receive and utilize
quoted market prices in active markets to validate results produced by these three methods, including aggregating the values of the reporting units and comparing this value to the market capitalization of the consolidated company. The discounted
cash flow valuation approach 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.



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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, 2010 and 2009.

Stock-based Compensation. U.S. GAAP 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. 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.

No stock options were granted in the first quarters of 2010 or 2009. Additionally, no shares of restricted stock and restricted stock
units were granted during the first quarter of 2010. During the first quarter of 2009, we granted 72,837 shares 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 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 $4.09 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 options granted, we calculate expected option
terms based on the simplified method for plain vanilla options, due to the Companys limited historical trading and exercise information. The simplified method calculates the expected term as the average of
the vesting term and the original contractual term of the options. The expected term affects the assumed rate of forfeitures. If the actual number of forfeitures differs from that estimated by management, we may be required to record adjustments to
stock-based compensation expense in future periods. As additional information becomes available to allow us to estimate expected term, we will discontinue use of the simplified method. We calculate volatility using the annualized daily volatilities
of similar publicly-traded entities.

For the three months ended March 31, 2010 and 2009, we recognized stock-based
compensation expense of $0.5 and $1.0 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, U.S. GAAP
requires that we recognize compensation expense only for the portion of stock options that are expected to vest.

As of
March 31, 2010, our total unrecognized compensation expense related to stock-based awards granted to employees and non-employee directors was approximately $2.3 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, 2010, we had net operating
loss carryforwards available for U.S. federal and state income taxes of $107 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. 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.



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Off-Balance Sheet Arrangements

As of March 31, 2010 and 2009, we did not have any off-balance sheet arrangements.



|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, 2010 and 2009, this translation adjustment, net of tax, was a loss of
$0.3 million and $0.8 million, respectively. We also maintain cash balances denominated in foreign currencies. At March 31, 2010, we had $1.7 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 (including restricted cash) of $36.6 million at March 31, 2010. 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, 2010, 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, 2010, no balance 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, 2010, 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 2010 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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. On or about February 24, 2010, Research International, Inc. filed a complaint against ICx Technologies, Inc. and its wholly
owned subsidiary, MesoSystems Technology, Inc., in the United States District Court, Western District of Washington at Seattle, alleging infringement of Research Internationals United States Patent Nos. 6,484,594 and 7,261,008. The parties
have discussed settlement and have exchanged draft settlement documents. While we hope to settle the matter in the near future, we can provide no assurance that any settlement of this matter will not result in a material adverse effect on our
business, financial condition and results of operations.



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

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, 2009.



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

Issuer Purchases of Equity Securities

During the period January 1, 2010 to March 31, 2010, 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  |  | 385                            | (1) |  | $                          | 8.05 |                                                                              | N/A |                                                                             | N/A
|February 1-28 |  | 525                            | (1) |  | $                          | 6.26 |                                                                              | N/A |                                                                             | N/A
|March 1-31    |  | 51,223                         | (1) |  | $                          | 7.23 |                                                                              | 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. | (Removed and Reserved)
|------- | ----------------------



|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 17, 2010



ICX TECHNOLOGIES, INC.By:

/S/ COLIN J. CUMMINGColin J. CummingChief Executive Officer and DirectorBy:

/S/ DEBORAH D.
MOSIERDeborah D. MosierChief Financial Officer




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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



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