The proliferation of global security threats has reached unprecedented levels. These threats not only jeopardize innocent lives, but also have the potential to inflict severe damage upon the global economy. Both the government and private sectors are preparing to address increasingly sophisticated types of terrorist attacks, including chemical, biological, radiological, nuclear and explosive threats, as well as other major security risks and natural disasters. As a result, the homeland security market has grown from approximately $33 billion in 2004 to approximately $55 billion in 2006, and is expected to grow 21% annually to $140 billion by 2011.

The U.S. military is facing challenges adapting to a new style of asymmetric warfare that requires tactics similar to those used in the homeland security market. An increasingly large amount of the DoD budget is expected to shift in fiscal year 2007 toward advanced technologies that better equip U.S. military forces to face such threats.

The demand for new security products and technologies also extends to the $145 billion private sector, a rapidly growing market in which many large commercial organizations have made detection, access control and advanced video surveillance a focal point for their security initiatives. Private sector organizations are expected to spend approximately $30 billion on these technologies in 2007.

Historically, advanced technologies developed for security and military applications have later been found to have applications in other commercial markets, such as biological research and energy, and have led to the creation of entirely new markets.

The Company offers products with advanced capabilities to detect threats in all of the critical chemical, biological, radiological, nuclear and explosive segments.

The Company is incorporating its core detection technologies in a wide variety of non-security commercial products. It sells chemical sensors used for pesticide detection, hospital sanitation and laboratory measurements; radiation instruments used by hospitals, laboratories and industry; gamma spectroscopy products used for environmental monitoring and food safety; gas sensors used for industrial safety and quality control; and sensors used in the construction industry to monitor the curing of concrete.

The Company’s surveillance products are designed to secure perimeters, such as around ports, airports, nuclear power plants, vessels and vehicles, and to monitor borders, parking lots and other public and private spaces. These products incorporate technologies the Company has developed to create and fuse images in the infrared, visible light, microwave and millimeter wave bands.

The Company has developed efficient, user-friendly interfaces that integrate its thermal/visible cameras with object-detection radars into a single product.

The Company is also incorporating its core surveillance technologies in products unrelated to security. These products include aviation and navigation radars, military targeting and tracking radars and thermal cameras used to inspect truck brakes for safety inspection.

The Company designs, create ands deploys security operating systems and video networking systems. In addition to providing platforms for its sensors and surveillance technologies, the Company offers software systems that are open, scalable and specifically designed to support or integrate with hardware and software.

The Company also incorporates the technology used in its security operating systems into non-security solutions, such as supervisory and control systems used to monitor electric utility networks.

Contract research and development revenue increased $1.7 million, or 27%, to $7.8 million in the first quarter of 2007 from $6.1 million in the first quarter of 2006.

Maintenance, service and other revenue increased $1.9 million, or 206%, to $2.8 million in the first quarter of 2007 from $0.9 million in the first quarter of 2006.

Net loss decreased $3.4 million, or 27%, to $9.5 million in the first quarter of 2007 from $12.9 million in the first quarter of 2006 primarily due to a $2.1 million gain on the sale of discontinued operations during the first quarter of 2007.