See Accompanying Notes to Condensed Consolidated Financial Statements.

The Company's total comprehensive income (loss) for the three month and nine month periods ended June 30,December 31, 2008 and 2007 was as follows:

The accumulated other comprehensive income (loss) balances at June 30,December 31, 2008 and September 30, 20072008 consisted of the following:

At June 30,December 31, 2008, the Company had forward exchange contracts outstanding with notional amounts aggregating $2.5$2.9 million, whose aggregate fair value was a liabilityan asset of approximately $39,463.$125,273.  The change in the amount of the asset or liability for these instruments is shown as a component of accumulated other comprehensive income, net of tax.

The Company maintains stock option plans that include both incentive and non-qualified options reserved for issuance to key employees, including officers and directors.  All options are issued at fair market value at the grant date and are exercisable in varying installments according to the plans.  The plans allow for the payment of option exercises through the surrender of previously owned mature shares based on the fair market value of such shares at the date of surrender.

Effective October 1, 2005, the Company adopted SFAS No. 123(R), “Share-Based Payment”, which requires that all share based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period.  For the three-month periods ended June 30,December 31, 2008 and 2007, the Company recorded non-cash compensation expense of $32,845$67,946 and $44,856,$20,767, respectively, ($.01 and $.01 per basic and diluted share, respectively) relating to stock options.  For the nine-month periods ended June 30, 2008 and 2007, the Company recorded non-cash compensation expense of $73,000 and $134,830, respectively, ($.02 and $.03$.004 per basic and diluted share, respectively) relating to stock options.  The Company elected to utilize the modified-prospective application method, whereby compensation expense is recorded for all awards granted after October 1, 2005 and for the unvested portion of awards granted prior to this date.

The Company is one of several defendants in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. in May 2003 in the United States District Court for the Western District of Tennessee.  The alleged infringement by the Company relates to its camera dome systems and other products that represent significant sales to the Company.  Among other things, the suit seeks past and enhanced damages, injunctive relief and attorney’s fees.  In January 2006, the Company received the plaintiff’s claim for past damages through December 31, 2005 that approximated $11.7 million plus pre-judgment interest.  The Company and its outside patent counsel believe that the complaint against the Company is without merit.  The Company is vigorously defending itself and is a party to a joint defense with certain other named defendants.

The Company is unable to reasonably estimate a range of possible loss, if any, at this time.  Although the Company has received favorable rulings from the USPTO with respect to the reexamination proceedings, there is always the possibility that the plaintiff’s patent claims could be upheld inon appeal and the matter would proceed to trial.  Should this occur and the Company receives an unfavorable outcome at trial, it could result in a liability that is material to the Company’s results of operations and financial position.

In the normal course of business, the Company is a party to certain other claims and litigation.  Management believes that the settlement of such claims and litigation, considered in the aggregate, will not have a material adverse effect on the Company’s financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," which gives companies the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards.  The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment.  Subsequent changes in fair value must be recorded in earnings.  SFAS No. 159 iswas effective for financial statements issued forthe Company’s first quarter of fiscal years beginning after November 15, 2007.  The Company does2009 and did not expect that the adoption of SFAS 159 will have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs.  In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense.  SFAS 141R is effective for fiscal years beginning after December 15, 2008.  The Company has not yet evaluated the impact, if any, of adopting this pronouncement.

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity.  This new consolidation method will significantly change the accounting for transactions with minority interest holders.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.  The Company has not yet evaluated the impact, if any, of adopting this pronouncement.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133” (“SFAS 161”).  SFAS 161 will change the disclosure requirements for derivative instruments and hedging activities.  Entities will be required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  SFAS 161 is effective for financial statements issued forthe Company’s second quarter of fiscal years and interim periods beginning after November 15, 2008.2009.  The Company hasdoes not yet evaluatedbelieve that the adoption of this pronouncement will have a material impact if any,on its consolidated financial position, results of adopting this pronouncement.operations or cash flows.

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”) effective as of October 1, 2007.  The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements.

It is Company’s policy to include applicableThe Company recognizes potential accrued interest and penalties related to uncertainunrecognized tax positions as a component ofbenefits in income tax expense.

Net cash provided by operating activities was $2.3$1.8 million for the first nine monthsquarter of fiscal 2008,2009, which included $1.1 million$508,000 of net income and $1.1 million$375,000 of non-cash charges for the period.  In addition, the $1.1net cash provided by a $3.2 million decrease in accounts receivable resulting from lower sales was offset in part by decreasesa $1.4 million increase in current liabilities.inventories and an $859,000 decrease in accrued compensation and employee benefits.  Net cash used in investing activities was $398,000$99,000 for the first nine monthsquarter of fiscal 20082009 due principally to $408,000$144,000 of general capital expenditures.expenditures offset in part by a $44,000 decrease in marketable securities.  Net cash used in financing activities was $2.1 million$480,000 for the first nine monthsquarter of fiscal 2008,2009, which included a $1.7 million scheduled repayment of bank mortgage loans and $559,000$539,000 of common stock repurchases offset in part by $188,000$59,000 of proceeds received from the exercise of stock options.  As a result of the foregoing, cash decreasedincreased by $99,000$1.3 million for the first nine monthsquarter of fiscal 20082009 after the effect of exchange rate changes on the cash position of the Company.

The Company’s U.K. based subsidiary maintains a bank overdraft facility that provides for maximum borrowings of one million Pounds Sterling (approximately $2,000,000)$1,450,000) to support its local working capital requirements.  At June 30,December 31, 2008 and September 30, 2007,2008, there were no outstanding borrowings under this facility.

The following is a summary of the Company’s debt and material lease obligations as of June 30,December 31, 2008:

The Company does not have any off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a material effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources.

The Company is one of several defendants in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. in May 2003 in the United States District Court for the Western District of Tennessee.  The alleged infringement by the Company relates to its camera dome systems and other products that represent significant sales to the Company.  Among other things, the suit seeks past and enhanced damages, injunctive relief and attorney’s fees.  In January 2006, the Company received the plaintiff’s claim for past damages through December 31, 2005 that approximated $11.7 million plus pre-judgment interest.  The Company and its outside patent counsel believe that the complaint against the Company is without merit.  The Company is vigorously defending itself and is a party to a joint defense with certain other named defendants.

In January 2005, the Company petitioned the U.S. Patent and Trademark Office (USPTO) to reexamine the plaintiff’s patent, believing it to be invalid.  In April 2006, the USPTO issued a non-final office action rejecting all of the plaintiff’s patent claims asserted against the Company citing the existence of prior art of the Company and another defendant.  On June 30, 2006, the Federal District Court granted the defendants’ motion for continuance (delay) of the trial, pending the outcome of the USPTO’s reexamination proceedings.  In February 2007, the USPTO issued a Final Rejection of the six claims in the plaintiff’s patent asserted against the Company, which was reaffirmed in June 2007 after the plaintiff filed a response with the USPTO requesting reconsideration of its Final Rejection.  The plaintiff has appealed the examiner’s decision to the USPTO Board of Patent Appeals and Interferences and has an additional appeal available to it thereafter in the Court of Appeals for the Federal Circuit.

The Company is unable to reasonably estimate a range of possible loss, if any, at this time.  Although the Company has received favorable rulings from the USPTO with respect to the reexamination proceedings, there is always the possibility that the plaintiff’s patent claims could be upheld inon appeal and the matter would proceed to trial.  Should this occur and the Company receives an unfavorable outcome at trial, it could result in a liability that is material to the Company’s results of operations and financial position.

The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its September 30, 20072008 Annual Report on Form 10-K.  Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured.  As it relates to product sales, revenue is generally recognized when products are sold and title is passed to the customer.  Shipping and handling costs are included in cost of sales.  Advance service billings under equipment maintenance agreements are deferred and recognized as revenues on a pro rata basis over the term of the service agreements.  The Company evaluates multiple-element revenue arrangements for separate units of accounting pursuant to EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, and follows appropriate revenue recognition policies for each separate unit.  Elements are considered separate units of accounting provided that (i) the delivered item has stand-alone value to the customer, (ii) there is objective and reliable evidence of the fair value of the undelivered item, and (iii) if a general right of return exists relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially within the control of the Company.  As applied to the Company, under arrangements involving the sale of product and the provision of services, product sales are recognized as revenue when the products are sold and title is passed to the customer, and service revenue is recognized as services are performed.  For products that include more than incidental software, and for separate licenses of the Company’s software products, the Company recognizes revenue in accordance with the provisions of Statement of Position 97-2, “Software Revenue Recognition”, as amended.

The Company provides for the estimated cost of product warranties at the time revenue is recognized.  While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure.  Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required.

The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions.  Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write-downs may be required.  If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The Company assesses the recoverability of the carrying value of its long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets.  If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount.

The Company’s ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible.

The Company is subject to proceedings, lawsuits and other claims related to labor, product and other matters.  The Company assesses the likelihood of an adverse judgment or outcomes for these matters, as well as the range of potential losses.  A determination of the reserves required, if any, is made after careful analysis.  The required reserves may change in the future due to new developments.